[CC may contain inaccuracies] I guess it's even more pressure when you continue to see core CPI coming in above
the bridges to a 2% target. And at the same time, you're seeing it
come in stronger than economists had expected.
Yeah, absolutely. I mean, if you look at the headline
number, that's up 3.3%. But if you look at the core PCI core
inflation, which excludes energy prices as well, that's about 4%.
And it's fascinating to think that on one hand, whereas US core CPI is in the
four handle and we have fed at having rates at 5.25%.
Bank of Japan, on the other hand, has rates in negative territory and they're
still doing QE. So I think given going out way does
comments earlier this week, it is quite likely that Bank of Japan will stay put.
But I think from a markets perspective, what's very crucial is the revised CPI
forecasts that we will be getting along with with the policy decision because
that could help us get a better sense of what could be the timing in terms of the
change or tweak in yield curve control policy if we're headed towards an
eventual tweak in the ICC, is this still a good time to jump into Japanese
markets even after the rally we've seen so far?
Or would you stay away? Because at the same time you continue to
hear about all of this optimism about corporate governance in Japan and how
this really fundamentally changes the picture for that market.
Yeah, absolutely. I think if you are a dollar based
investor, we think it's still a good time to to enter or add positions to
Japanese equities. So as you rightly pointed out, we also
believe that, you know, the recent improvements or steps taken towards
improving corporate governance, along with the increase in share buybacks that
we are seeing from Japanese companies, is a big tailwind for Japanese equities
just from a valuation perspective. And also I think let's not forget Japan
after many, many decades, is seeing growth surprise to the upside, not only
in real dollars but also in nominal terms.
When you think about the the the elevated inflation that we are seeing
and that we think should translate or feed into stronger corporate earnings
compared to market expectations and from a valuations perspective, Japanese
equities are not expensive. So, you know, when you put all of this
together that we still think it makes sense to add exposure to Japanese
equities. How is your view on China changed in the
past week as we get this kind of drip feed of a broadly positive messaging,
but it's certainly not the big bang stimulus package that perhaps we might
have expected in the past. But what we've seen from China is is
broadly in line with our expectations. So we have been highlighting that we
won't get a big bang stimulus from Chinese authorities.
It is going to be a series of targeted measures and that's what's come through.
Now, clearly, market sentiment and investor sentiment has been scarred over
the past couple of years given the raft of regulatory measures that were taken.
So we think it'll take time for investors to regain that confidence and
will need to see evidence of economic data recovering.
But from a valuation perspective, we think that Chinese equities are
extremely cheap, are more than they're trading at more than 35% discount to
global equities. And, you know, investor sentiment seems
to be on the extremes. So we think that over the next 12
months, there is a fairly good likelihood that Chinese equities should
outperform global equities. Do you see further downside risks for
the under. In the near term.
Yes. So, I mean, if you think about the key
drivers for for any currency pair, it boils down to the real interest rate
differentials. And on one hand, where we we probably
expect Fed to hike rates by 25 basis points next week because is easing
policy and we expect it to ease policy further.
So we will see a widening of interest rate differentials.
And, you know, over the next month or so, it is possible that the NH retest
the 7.28 sort of high we saw earlier this year or even past 7.30.
But what we are also seeing is that authorities are coming in with stronger
measures, stronger fixes too, to prevent a rapid depreciation of CNET.
So, you know, maybe we will that level. But on a 12 month horizon, once you
know, a view of Chinese growth, rebound picks up, we think that there will be
sort of a sea change appreciation that we see.
And we have a target of 7.0 to 7.08 for us on a 12 month horizon.