Rob Hoffman is our guest. Robert is the head of investment Counselors at City Private Bank South Asia. He joins his via zoom from Singapore. Robert, thanks for being with us. I was struck today by the City Group's Surprise Index for the American economy at any rate, and there's a very strong correlation between what's been going on with that index and the S and P as it relates to some hot numbers on the data and the expectation that the FED is gonna have no choice but to remain aggressive.
So I guess we've got to begin with the FED. How much more aggressive do you think they'll be? I think the feed is completely data dependent right now, and that the data that they're looking at is really around employment. So this is gonna be a critical week as we start to see the initial jobless claims come through to see to get a good gauge on on how much
more aggressive at the FETE is going to be. Our view is that that inflation still remains really tight, especially in the US, and so the FEED is going to remain laser focused on ensuring that they can try to bring down some of that tightness and labor markets are you are the view that we will see a global recession if we're not already on the cusp of one. I think it's all but a foregone conclusion at this point that two and twenty three will will see a
recession specifically in the US. But the question now is just how deep that recession is going to be. And the challenge for investors is looking through at the long term implications of policy changes from today, because there is a long lead time for for how these effects trickle
through to the broader economy. So you see economic releases as well as the earnings numbers that come out later this week, traders analysts will be passing through those numbers to try to make projections for where this market can go. And uh, I think that you're going to see a lot of lost sleep from analysts over this week, and so this will really dictate that the terms of how Q four is going to go for us. A very
important week ahead. Yeah, most definitely. And I think to your point, FED Vice chair Lyle Brainerd was kind of making the case about the lag time involved when you begin to tighten. Uh, some of the impact is not known for for a while. But one thing I think we can agree on, Robert is the fact that the dollar has been tremendously strong, and this has done some damage to the Japanese currency a bit, but other e
M currencies have not been faring well at all. And what type of headwind does a strong dollar represent in in your part of the world. I was sitting here in Singapore, where you're tied a little bit more closer to the U. S. Dollar, you feel a little bit less of the impact. But I think the central governments and it forces hands of central governments in reserve banks around the world to how they're going to treat their
their monetary policy. So you saw Australia last week coming in and surprising markets with a slightly devish tone on on what they were doing with rates US on immediate currency impact, and now you're seeing Australian dollar trading and lows for the year. Um, there's I was in Australia last week when that came through, and I can tell you that there was a lot of immediate concern from business owners as to what they're going to do with some excess savings and how they're going to hedge out
some of that risk. So I do think that that the US is exporting a lot of this concern as they continue to strengthen the dollar with interest rate increases, they're making it the concerns of other countries. And so you see what happened in the UK, you see what happened in Australa. You expect more of this specifically here
in the region. So we've had Taiwan urging come on t SMC and downplaying the impact of the biden ship rules, But how much do these increase in US Sino relations kind of complicate things, particularly as we're looking to the Party Congress in China this weekend. So I think they obviously complicates things enormously because you're disrupting the entire global supply chain at the time that it's already been disrupted over the last two years, and it creates even more uncertainty.
So all of the feed through manufacturers, all of the the end users are going to have to try to figure out how they're going to redistribute their supply chains to ensure that they have supply in periods of heightened uncertainty. And that's only going to increase, especially with what you see in Russia and Ukraine and and in China Taiwan. That the whole discussion there is going to have to to make companies start to plan through multiple contingency plans.
That's also going to continue to put pressure on inflation because as you diversify that supply chain and get away from the lowest cost provider, you have to realize that that that it comes at a cost. But the tent here on the part of the ad Biden administration is to constrain growth of China's nascent semiconductor industry. I mean, what type of headwind does that represent to technology companies
on the mainland. It again, it comes back to the idea that is, you're trying to disrupt the supply chains, whether it's on mainland, whether it's in US, whether it's in Taiwan. You're creating tension throughout that entire supply chain. So making these long term decisions is going to be a really difficult proposition as to think about how are we going to do this for the next five to
ten years. So the other thing to keep in mind too is that you are also we have to take this with a grain of salt because we are at the height of political tensions. Just given the fact that you've got an important party congress in China as well as US elections coming around the corner over the next couple of weeks. So with that you're going to see an increase in rhetoric. But I do think it dies down as we get past this this really volatile period.
You were talking before about central banks in and a small pivot I guess coming through from Australia. But how much of a concern of real estate market's globally when you do have high levels of floating rate mortgages. I think it's not only is it levels of floating rate mortgages, it's each country is a little bit unique. You've got high debt to income ratio concerns in the UK, whereas in Australia you just have outright high floating rate liabilities exposure.
It's in meeting yesterday, as I mentioned earlier on at the other segment, it was I met with real estate developers in Australia. They've never seen in These are principles that have owned these companies for thirty years. They have never seen a faster disruption to supply and and new projects. So everything is being reconsidered and refactored right now for them, and it's really difficult to make long term decisions on development.
The US, I think, is one of the markets, though it's relatively well insulated from higher interest rates, simply because floating rate mortgages have been really largely done away with as you've gone off this period of really low interest rates. But countries like Hong Kong, uh countries like UK Australia where they have a higher proportion of floating rate mortgages, this is going to be a very largest eruption to their real estate markets. So, um, you could see some
economic pain here in the short term just from that. Yeah, And the CEO of one of your competitors, Brian moynihan of Bank of America, was saying, the US consumers in very very good shape now with money in their accounts at multiples of what we're what was around during or before the pandemic. Very quickly, Robert, I can give you about sixty seconds to lay out a bold case for going along an asset right now. If I if I said, quickly, when we've got to put money to work on the
long side, what would you do? Great question. So I think one of the things that that you have to keep in mind too, is that that sentiment is absolutely dripping with negativity right now everywhere that you turn, and and that's reflected in positioning, it's reflected in how what
the outlook is for for asset purchases. But as you look at this, as we go into your end, there's a real chance that you could see a surprise to the upside on earnings just given the fact that the unit sales may be down, but the actual first inflationary prices may put upward pressure on profitability into Q four. So there's a real contrary in case to be made right now that in the short term you could see
upside equity markets. Now, I would want to make sure that I own quality, high quality assets with strong free cash flows. I'm not sure I go for low quality assets with pure growth. So um, don't don't be completely out of markets, but just make sure that you maintain positioning around your risk exposures. Robert a pleasure. We'll see you on TV in a couple of hours as well.
Robert Hoffman is Head of Investment Councilors at City Private Bank South Asia with US from Singapore here on Bloomberg Daybreak Asia