Let's say good morning to Thomas Ta ahead of a pack I share his investment strategy at black Rock. Thomas pretty decent rally now that we've seen through the month of July a couple of wobbles, But I think you have to say that it's it's starting to raise questions about whether or not this really is a bear market rally or whether something bigger is at hand. Your thoughts, Yeah, good morning, Happy Friday. Uh And as you said, everything
is Rosalie again. Apparently it's been a very strong risk on month, uh, for particularly for US equities, not so much for for Chinese equities. But yeah, I mean I think for us not necessarily time to buy the dip here. Um. I guess that's kind of the summary. You know. It's one thing I would sort of mention is that you know, going into this month, um, what we had seen from positioning was very very pessimistic. I mean, we we've all
kind of seen the Bamel survey. And also in terms of cash cash holdings that are around twenty high is overweights, sorry, underweights on equities kind of the the the highest since two thousand and eight. And when you look at also et F flows like the majority of the inflow for the first six months of the year all into short
duration treasuries, defensive equities TASH positions. So it kind of makes sense that given we have seen a little bit of a pullback in inflation and expectations on rate hikes, that we see a bit of a risk rally here. Well, let's talk about inflation and when we see peak inflation, particularly as we're awaiting the key data coming through from
the U S Friday. Yeah. Well, I think one thing to really mention is between April and June, before we got that sort of nine percent cp I print, which I've got a lot of press obviously, UM, we saw gasoline prices rise by about and I think that one of the one of the issues that the FED have had is that obviously US consumers are very sensitive to that UM and so I think since we've seen a pretty significant pullback in gas, oil, commodities, etcetera, that's giving
the FED another Central Banks a little bit more lee way to be slightly less hawk ish than they have been. But you know, for us, we still don't think that a soft landing is really possible. So we are kind of getting to that neutral rate where the FED and other central banks have to decide whether they want to quell inflation or whether they want to support growth. So that's where we are now. I wanted to slip in a quick question on China, and we saw from the
Polar Bureau yesterday. One key line was the leadership calling an officials to ensure that housing projects get completed. It seems like it really touched a nerve with people out there boycotting their mortgages. Yeah, so, I mean, I think the very interesting from that statement was that they're obviously looking for local governments to sort of shoulder that main responsibility, and they've sort of said, you know, we're not going to We're not gonna give us give some kind of
the Zuker stimulus to support the housing sector. So um, you know, I think that remains one of the key risks, particularly in the fixed income market for investors. Uh, it is quite a difficult time to be investing in China for US neutral. Uh. The other thing that came out of that was no no shift on COVID zero strategy, which which is really top of top of mind for foreign investors when looking at China. So let's talk more about what you're expecting in moves in China equities in
the second half. Brian was talking about the Politburo signaling no big stimulus despite the slowdown and these concerns that those mortgage boycourts could damage the second half recovery. But do you still see some potential for China shares well?
The answer I guess long term is yes. I think in the in the shorter term tactically, you know, I think there's a preference for US for offshore sort of China technology type companies, just because in terms of the the things that you just mentioned around um policy, mortgages, et cetera, none of that is really impacting China technology, and also from evaluation perspective, it just looks quite interesting. But you know, we were kind of looking for more
policy going into National Party Congress in October November. We're still kind of sitting on the sidelines waiting for that. So, you know, I think the the offshore a foreign sentiment towards China is very very barish at the moment. So hopefully we can get some some bear market rally, but at the moment, pessimism is quite high. The proposed Ali Baba primary listing in Hong Kong may may pave the
way for a lot more companies to do it. About fifteen other Chinese companies have secondary listings here that might do the same, That could juice up the flows a lot coming in from China. Now, we don't know if all of them will qualify to be included in the stock connect, but it would it would seem to support your point that there's some opportunities there. Yeah, and and this is something we've been looking at for a couple
of years. Right that the a d R declusion thing is not is not new news, but certainly the Ali baba Uh situation is quite interesting. Um. You know, I think I think for us, for for for a foreign investor perspective, it just looks a little bit more attractive versus versus Onshore where you do have some more of the issue of of continued lockdown, zero COVID strategy, the property situation. Um. So yeah, I think that that's that's kind of an area where I think investors should be
looking at. But you know, whether the tech regulation situation is now finished, I think the answer is no, but I think it's certainly peaked. So so we're gonna need to see some some earnings come through, which will be starting in the next couple of weeks, and maybe that will be assigned post for investors to move back. When we look more broadly at TAK, I mean we've had warnings from the likes of Samsung, Eska, Hineks. We're looking
at the big players in the US too. How much do the complications that we're seeing in the global economy Ukraine, COVID lockdowns, higher inflation or way into I guess how they're planning and whether or not consumers want to continue to buy a lot of these gadgets. Yeah, I mean it depends country to country. So you know, for for are places like South Korea, Taiwan. You know, we've been underweight those countries for the first half of the year.
Uh and also also for Q three, mostly because as you mentioned, a really heavy reliance on technology growth some of these companies Samsung, TSMC, for example, and as inflation has kind of spiraled out beyond the control of central banks, we've seen really aggressive rate hikes. I think in the U s it's a little bit different, yes, and as DAK is under performing year to date, but some of these companies in the technology space are still seen by
investors as defensive. So we've kind of seen that as a trend throughout the year, investors buying into some of the large cap technology companies as kind of recession playbook, whereas, as I mentioned, Korea, South Korea, Taiwan a little bit different because they are so much more reliant on exports and global growth. Just briefly, on a big broad question, the FED fund futures is suggesting on three and a quarter percent is where the Fed will get to when
it pauses. With the labor market this strong? Is that the key? I mean, if the labor market stays this strong, with the terminal rate b maybe a little bit higher, I think so yes. I mean, you know we've seen that tone or rid come lower over the last few weeks. UM. A lot of it is being driven by inflation expectations. Obviously, that's that's kind of the main worry for most investors.
But you know, when you look at the forward rates and projections of rate cuts into next year, that's basically telling us that the market is expecting some kind of recession if we're not already in one, and at some point the Fed will pivot pivot policy and that should
be better for for risk markets. But in the meantime, uh, they're so they're so bent on on calling inflation that we we prefer not to buy the dip here, all right, Thomas, thank you as always Thomas to ahead of a pack I shares investment strategy at black Rock for from Hong Kong. And this is Bloomberg