Thomas Taw on the Markets (Audio)

raising interest rates? Hey, good morning, Yeah, that's that is obviously the big question that everyone's asking at the moment. You know, I think if we look at the speech the Bell gave on on Friday, not not a huge surprise, but in terms of how the market reacted to it, it's it's not so much that we think that the terminal rate will be necessarily that much higher, but it's more in the fact that they're basically pushing back on

the pivot. So the expectation that will get rate cuts in the second half of the year I have so much somewhat dissipated, and that's obviously had an impact on longer duration stocks. But you know, for us, this is still very much supply driven type of issue and one that really can't be can't be solved by keeping interest rates very high for very long. So you know, for us, the danger is that the Fed are sort of choosing

to quell inflation at the expensive growth. Uh, and that's going to be very hard to sort of back down from over the next three to six months. Is obviously the data is lagging, and as we start to stick see growth come off, possibly unemployment heading higher, it will be it will be more difficult for the FED to

actually back away from that policy. So I think that's the main concern from us, where we are still relatively defensive and have been so during this sur during this rally, Okay, so relatively defensive, and we heard from Neil Cush Carrier as well, saying that the rally you saw from June to August not encouraging. What kind of happens towards the latter part of the year then in your view, Well, I mean, for us, as I said, we're we continue

to be relatively defensive. So you know, if you look at our our asset of the cage over the next six months, we're underweight d m U S equities we are neutral on on Asia, Asia X, Japan, China, so I guess relatively more optimistic on on Asian equities, but but certainly not that optimistic on on DM equity. So you know, we think that the FED, possibly other central banks e CP as well will likely raise rates by

SIS at the next meeting. Also are are again sort of choosing to to fight inflation at the expense of growth, and that's obviously going to have a big impact on on the economy. So you know, for us staying defensive, staying short duration on the fixed income side, and and and and picking more defensive type exposures and equity. But in the end, the FED is data dependent, so it will be watching the data and if the data slows, then the FED will slow. Yes, so they so they

keep telling us um but that that is correct. Yeah, but it obviously is a lag mechanism, right, So you know, a lot of eyes will be on the NFP. This this unemployment is obviously very important to the FED. There is there is also a big difference if you look at pc which they're watching versus CPI, where you have energy and food prices which are really the drivers of

inflation at the moment. So um, yes, they are data dependent, but the data is lagging, and so by the time they look to reverse maybe second half of next year, then you know, it might be a little bit too

late in terms of GDP growth. I just mentioned we had a stronger than next way to do unfixed for a fifth day from the PBOC, and certainly the impact in Asian currencies as we see the inflation fight by central bankers are reaching quite a bit of havoc and causing some concern that we could see the same as what we saw in your view on on what China

is trying to do here to stem the undecline. And I guess your outlook for the China economy too, sure, yeah, well, I mean all eyes are on the seven handle at the moment, but in terms of in terms of the outlook on China's to seem very difficult to find bullish

bullish reasonings for investors to to move into that. I mean, over the last couple of weeks, we have seen, um, some some optimistic news in terms of the stimulus package that we got, uh, some news on good news on a d r D listings possibly being uh that situation being sort of handled, but uh, all eyes are still on the COVID zero situation, and I think until we get some kind of inkling from from the China Chinese government that uh there is some prospect for it for

reopening into next year or shift away from COVID zero strategy. It seems to me like foreign investors are are shying away from from Chinese equities and also Chinese Chinese bond. So you know, no matter what we kind of hear on on the economy and stimulus and uh an a d r D listing, until that situation is kind of uh covered, uh, it's going to be quite difficult for investors to move back into China. So you know, for us,

we're still neutral on Chinese equities. For a longer term perspective, you know, there are there are reasonings to to buy that that asset class, but for for the short term, still very volatile. After the Party Congress um, it's debatable whether or not Si Jinping doubles down on his restrictive policies in many areas tight regulation in such or whether or not there's a little more of a comfort zone

to to open up. I think a lot of people would agree with you that there's not very um there's not a very strong likelihood that COVID policies will be relaxed. But is there at least a chance that perhaps we see less regulation going forward. I think there's a very strong chance of that. I mean, you know that I've I've kind of had the same position over the last few months, which which is the less the regulators say,

the better. I mean, there have been obviously some some new implications in terms of of the property sector, et cetera. But also one thing that we've been looking at recently is is on these heavily regulated, uh impacted companies in the in the tech sector, actually the earnings have have have beaten expectations. If you look at companies like Maye, to On Tens and Ali Baba. You know, not obviously not a lot was expected given COVID lockdowns and tech regulation,

but actually earnings have been relatively better than expected. But until we get some shift away from COVID zero policy, that doesn't really matter that much because we always have the possitibility that we'll get further lockdowns as you're reporting on earlier, and that will obviously impact those companies bottom line. So everyone is watching that. UM, you know that that that speech in October November, whenever we get it, is

going to be very important. I don't think investors are expecting Sheet to come out and say we're moving away from COVID zero. But if we get some kind of some kind of tiny inkling that maybe you know, quarantine rules are changing, or you know, there there's some kind of shift in UM, some kind of shift in vaccinations or whatever it might be, that that could be a

possibility for a rally. But until then, you know, I expect it's just going to be volatile as the market sort of move us within a range where we have seen an incredibly fast pivot though is an Asian I mean virtually no restrictions anymore, and the likes of Singapore and Thailand, Thailand saying they're expecting to welcome a seven and a half million overseas tourists in the second half. Has this reopening theme across Asian already been priced in? Um, I think a lot of it has been priced in.

I mean, it's been fairly well documented. Uh. You know, Thailand clearly has a very high sensitivity sensitivity towards tourism, and you know that's that's obviously very impactful. Acciona has done very well this year relative to the rest of the markets. It's it's something we were kind of looking at as sort of the last COVID rotation trade in terms of you know, starting with China and then into the US one into Europe, uh and then finally into a. Siena is kind of the last, the last, the last

region to actually move away from that. So a lot of it has been priced in, but you know, we still need to see the data, so I think investors will continue to buy that because other regions are still under pressure, all right, Thomas, Always a pleasure, Thank you, Thomas to ahead of a pack I shares investment strategy at black Rock, joining us from Hong Kong