Let's get to our guest. Omar Slim is with us. He is senior portfolio manager of Asia Fixed Income at pine Bridge Investments. He's on the line from a Singapore Thanks for being with us, Omar. We're focused on the Fed minutes, trying to read the tea leaves, so to speak. A couple of things we learned. I mean, obviously rate hikes are going to continue. We know there's a lot of work that needs to be done in order to get inflation under control, and then a slower pace at
some point would be required. That seems logical. Now we're seemed we seem to be getting the sense of some anxiety building among a few members about the risk of overtightening. Is that really significant in your view? Well, I think the Fed minutes didn't bring anything particularly new, to be honest, Um, as you said, they said that they can potentially um start to reduce the size of the hikes, which is quite logical, and there is some concern in terms of overtyping.
So there was something for everything for everyone. Really, Um, I think what's happening is that the so called factive it is more of a market narrative as opposed to a fat narrative in the sense that the market is thinking that the inflation expectations have started to respond to tighter financial conditions, and inflation has been dented that will continue to go down and as such, there are some thing risks of um inflation being completely out of control
that have dissipated, and that's why we saw a positive market reaction in the past few weeks. So I think what's happening with the fact is that they're keeping goal options open, but the market narrative has changed a bit. I'm out when we look at what the bomb market is showing us about these growing recession risks, it gets to that point about whether or not we kind of
almost need a recession to brain in inflation. Isn't what you're saying, Well, I think having a soft landing is possible, but I think it's very, very very difficult to achieve.
So I would say it's possible, but not very probable. Um. I think what the base case scenario for us would be a slowed down without getting in a semantics, whether it's it's a recession or a technical recession and so on, but we think that there will be slow down and the recession or a recession like environment, which will likely be rather shallow. Um And yes, it does take that kind of environment to slow down the inflation that we're getting.
Having said that, we are starting to see certain drivers of inflation that are slowing down, particularly when it comes to the housing market. Um. So, I think the trajectory of inflation is now on a much healthier past than where we were six months ago when the FED and pretty much all of the central banks globally we're way
way behind the curve. Yeah, no doubt about that. And the commodities to your point about inflation coming off its peak, I don't know that we are at the point to be able to say, yes, we've hit peak inflation, but commodity is are lower, particularly crude oil. In about thirty seconds, O, Mark, give me your sense of how long we talk about monetary policy operating with a lag. What is that lag in your view? Well, it depends which which which, which
west center back we're talking about. I think with the fact it's probably arguable that there were probably two quarters behind the curve, and I think that by year end we're going to be in a much better shape in terms of firmly than think the inflation le trajectory. I think Europe is a different story, particularly given that there is a chance of energy crisis there and the drivers of increation in Europe are different from what we see
in the US. Does that kind of mood continue given all the uncertainties and the fact that you've got some of these restrictions in terms of the COVID restrictions at the same levels they were at the heart of the pandemic. I think when it comes to China, the longest word of it is that it's difficult to see any positive catalysts UM and the situation is rather concerning on a
number of france UM. I think, for instance, the China property crisis that we're seeing is potentially starting to metastize into something a bit more significant, at least in terms of some pockets of the financial system. And what we have been seeing consistently is that the China policy response um IS has been underwhelming for the past a few quarters,
and I think it I'm nuture. What needs to happen is that the China policy response needs to be more robust UM and particularly when it comes to China property market, there needs to be more support measures and because they have been saying that they will be supporting the market for a while. The market is no longer given the policy make it the benefit of the doubt. So any kind of incremental policy support that we've been seeing, including
the BBC cut, is being met right there skeptically. So I think they need to be more by the Chinese policy makers to turn this around. Yeah, even before that cut in the one year MLF, we had the data over the weekend showing shockingly weak aggregate financing data, about half of what economists were expecting. We know that there
is rampant liquidity in the system. We were talking to one of our market reporters yesterday about this time on the show about the the probability that there the China is really in a liquidity trap right now, and if there is a remedy it hasn't been discussed. But maybe the PBOC uses the playbook of the FED, the b o J, the e c B and you start putting weak assets on your balance sheet. Would would that be a solution to the problem. Well, there's two things to
say here. One is the financial transmission mechanism in China is quite different from what you see in some of the other developed markets. Meaning that it tends to the the cheap credit and the easy credit tends to flow largely into of the larger institution, particularly of their related to the sovereign. And what needs to happen now is that the liquidity needs to permeate some of the smaller companies and particularly some of the segments in the China
property in the China property market. The other thing is that I think you were saying in your in your reporting that there's a few banks that are starting to downgrade the Chinese growth um we've it's for us. It has been pretty clear since the second quarter that the Chinese growth projections too ambitious. We think that there will
be a substantial still down this year. So our base cases around two to three percent full year GDP growth because of a number of things, including the COVID zero, but also the increasing concerns about the China property crisis again starting to have an impact that is much broader in terms of the economy. What's your outlook though for our cn and if we do start to see a peak in US inflation, what kind of boost that gives
to Southeastern Asia bonds? I think for Southeast Asia broadly and particularly in terms of currencies, UM, it is rather constructive that the market is starting to think that the main policy hikes from the major center banks, specifically feed already been priced in. So we're seeing some recovery in terms of some of the Asian currencies and I think
that will that will continue. Um. The other thing is that we are seeing a re opening accelerating in South East Asia, particularly for instance in Thailand, which is starting to see the benefits of the border the opening with without massive increase in terms of tourism. So I think broadly in terms of South East Asia, particularly when it
comes to currencies, we're turning more constructive. All right, Oh might great to have you with us and Muslim, a senior portfolio manager of Asia fixed income at pine Bridge Investments, joining us from Singapore.