All right, thanks very much, Denise. The time seven minutes past the hour. Our guest is Vikas Purshad, fund manager at MG Investments. Well, it seems like rising real yields are sweeping through the U S economy, at least at the moment, and no doubt elsewhere. One would think that this will lead to rising costs for companies and and earnings downgrades, which you haven't seen that much of yet. I don't think that's fully discounted. What does that affect
the most and what's generally more secure? Hi, good morning everyone. I think what that affects most is the equity prices that are most vulnerable, are the ones that have risen the most and that are most dependent on consumer spending and energy costs. So that but this is not a small universe of companies. So what has changed since the last time we spoke about seven weeks ago, is that we have seeing an appreciation and equity prices in the
face of a deteriorating earnings outlook. So last time we spoke, we thought the weakness in the June quarter would most certainly continue into the September quarter. But I think we have now questions about whether the December quarter will see an improvement. I think on the balance of probabilities that
it's probably not going to happen. So we we we think that the the outlook for earnings has deteriorated since the middle part of the summer, and you couple that with the rise the appreciation and equity prices, and and the various sectors look vulnerable here because you say one of the biggest risks is, of course the related impact on energy costs from what we're seeing in Europe. Is that just as big of a concern in terms of aggressive FED hikes too, I would agree, yes. So I
think this has not been a normal summer. It's actually not been a normal year. And the risk that we are seeing our general the broad based, their systemic rising energy prices, the rising cost of money, rising inflation, all happening at the same time. Uncertainty has gone up. And one thing that we have spoken about often is the how companies are smarter, the balance sheets are healthier, people
are thinking about the right things. But when you have this confluence of risks all the same time, significant risk all at the same time, I think it it's going to pose some challenges for uh. Yeah, please, Well, I mean the point you just made raises the question of why we're not seeing a bigger sell off, and it suggests that either companies and consumers have strong balance sheets, or that there is a lot of underlying strength in the economy that we're just not highlighting. Well, I think
it's a bit of both. And if you look at where consumers are spending, if you look at flights, if you look at restaurants, if you look at um travel hotels, that is pretty strong across the region and around the world. But you look at certain other categories and the consumers pinched. And I think when we look at things like a basket of commodities for inflation, consumers are very diverse, even within a particular geography, but certainly across the region and
around the world. So I think we have to take that into consideration. You look at the market like India, where purchasing power is very concentrated, it you see a headline number of one point three one point four billion, that's that's very different from where the purchasing power is and and so we need to be careful of that.
And so I think in general, inaggregate, the risks have risen since maybe the Midsummer and a couple with the battle, as you say, between inflation and priceia capital is the impact of the strong dollar. How much does that kind of I guess give a bigger head win for Asia. Well if we if we now move from west to east and we look at Japan for example. So for exporters, pretty good environment, you're selling, most of the costs are domestic,
it denominated. End you're getting much higher dollar based revenue. But I think for the consumer, the their importing inflation with these higher energy costs, with the higher input costs, and for them it's it's going to be more challenging At the end. It comes back to the consumer, and I think you're going to see vote ability in sectors that are directly or related to the consumer, whether it's consumer staples, pricing hikes. Some market participants are getting excited
about pricing hightstick pricing hikes sticking. I don't see that happening, and not just in Japan but across the region. At some point these companies are going to see margin compression because they can't just keep hiking prices. Does the upcoming Communist Party Congress offer a quick fix and potentially and move away from COVID zero. But I think given the size of the China economy and the growth targets that they have set, I'm not quite sure that any one
meeting has a big impact. So our focus is on more than intermediate to longer term. There probably will be some some pro growth initiatives that are launched. There might be also some short term reset of expectations in the short term, but I really don't think, given the size of that economy, that one meeting can really have that
much of an impact anymore. Some in the marketplace think it's a myth that the PBOC is trying to uh to to put a floor under the rem M B because even with these strong fixes, they are seemingly allowing it to continue to weekend ever closer to seven to the green back. What do you think is a level from which they really will try to stop the decline.
I think on specific levels, it's it's hard to have a view there, I think, But but this is something that we think about often in in the context of currencies. I think King dollar is called king dollar for a reason, and you look at the relative dependencies on energy costs, energy imports, and the reserve currency status and so relative
to this. So if you don't look at the remnant be in isolation or the yen in isolation, or the Rupean isolation, but compared to the dollar and other currencies, I think that's something that we were reevaluating how how long this can continue. When when I was on two months ago, my thought was from that as a starting point, I would expect to see in dollar terms Asian current Asian indices, I'll perform the western markets of the SMP
in particular. I think even what we're seeing that's something that we're questioning a new You talked earlier about some of the calls that you have. I know you mentioned India. I just wanted to get more of your thoughts on on some of these sectors that you are going long on, because steel and cement are in that basket, and that's obviously on on construction, on industry. Just tell us a
little bit behind this call. Yes, of course, So India in general is a fascinating market right now, and it's also a bit trickier because I don't think there's a market in Asia where we have a more positive long term view coupled with a short term rally and markets and and stocks that have gone from being pricing to perhaps even expensive. Now the sectors that you mentioned, in
particular steel and cement. If you look five to ten years out, the number of airports being built, the roads being built, the hospitals, the things around roads, hospitals and airports, all that is going to the demand there is going to far exceed the supply and the pace at which supply can come on. So that is very positive. I think in the short term energy, these energy impacts that we're talking about in the June quarter that will continue
the September quarter. I think that's going to bleed into the December quarter. All the stocks have rallied materially from the June lows, and so that's why I think it's it's an interesting time to be looking at these What I can tell you is that we have reduced our exposure a little bit at the margin for now given the rally that we've seen and the incremental information that we've gotten on their cost structures. But it's not been a drastic change because the outlook for the longer term
is very positive. Yeah, but the SENSEX, as you say, is expensive trading. It more than twenty two times earnings UM. There may have been also a little bit of um a false signal sent by the strong GDP report because of how weak it was, how weak growth was because of COVID the one year ago. I I agree with that, so we started from a low base on the g D report report, on the GDP report, we started from a low base and equity prices at the end of June.
So in the past couple of months we've seen a signaturant rally there and I would say up until maybe late July early August, a lot of the bounce back across sectors in India was sensible, it could be justified. I think what we've seen since then is things look a little bit stretched. So our cash levels in Indian in particular a little bit higher than they have been
in recent months. Alright, Vicas, thanks for joining us. We'll see you on TV in a couple of hours too, because my share fund manager at MG Investment on the line from Singapore for us here on Bloomberg Daybreak Asia