You also like those domestic demand oriented stocks that are not so globally
sensitive. Tell us where are they.
Yeah you're right. I think in this environment it makes
sense to be sort of much more domestically focused and IBEX from
externally focused areas. So that would include areas for example
parts of Austria. So we have been sort of Ordway to
Austria and heading into the year. So we still like Indonesia.
We still like Singapore. So those are the markets which are much
more defensive or to the global better. I would say heading into the party
Congress we also tactically like issues which obviously is much more less
correlated to the global better which is much more sensitive to policy easing
that may take place. And you could also see some support from
the national team buying. So I would say China issue sparks of so
far China is something we like. And I think as you said on the other
front in terms of things that are much more globally sent to do parts of North
Asia notably cutting out Taiwan even Hong Kong India it's something we are
more cautious about. So they're are very interesting.
Then you mentioned the party Congress. So do you expect investing conditions to
get better or to get worse ahead after the party Congress in China.
So you're not expecting any major changes in terms of either zero growth
policy or any any major changes related to property sector.
But I would say on the margin there should be a better implementation of
policies both the party Congress once the personal issues are being sorted
out. So from that standpoint I think that
would be a positive signal for the markets.
So now when you take a look at the valuation risk where do you see the
vulnerabilities when it comes to Asia in particular particularly emerging Asia as
we seeing those outflows from an ETF at the moment.
Yeah. I think though if you sort of look at
what's happening in the market we are clearly seeing an unwind of the summer
rally which in our minds was basically a bear market rally.
And I think the combination of slowing growth higher rates as well as kind of
stronger dollar would continue to put pressure on regional equities in
general. Right.
And I think within their markets which are a little bit more expensive on the
valuation side notably for example India we do like the longer term growth story
there but the valuations are at extremes there.
So that's something where there is more to valuation risk.
And I would say the the long duration part of the market which is not
profitable. That could continue to be under pressure
because of higher rates especially with that with the pick in the real rates
which tends to put pressure on equity valuations.
How are you feeling about consumers in this part of the world at the moment.
Obviously if you take a look at the stress when it comes to the lower end of
the consumer in the U.S. does that mean that we see that carry
through in in Asian economies where we are seeing that tightening rate
environment as well. Yeah that's right.
I mean in general we having a little bit more cautious on the consumer side
partly because of the slowing growth here as you mentioned which is sort of
holding consumption partly because of the margin risk which are still
persisting because of the higher inflation.
So I would say in general the SEC totally we are positioned is somewhat
more balanced in terms of so forecasts of value as well as pockets of growth
and a bit more defensive. So I would say banks is something we're
still like given the higher rates environment.
We then extends to benefit banks which tends to be in the value pocket as well.
Energy is something we like as well given our views of higher prices later
in the year. And I think in the growth bucket things
that are profitable and have deviated some some parts of internet we like as
well. And generally speaking we are to a
little bit more defensible. And so we have sort of upgraded telcos.
So consumption we are generally underweight.
Yeah. And how much more is that call evident
in economies like Korea and Japan where we're seeing multi-year lows for their
currencies against the US dollar and spending power being eroded.
Yeah I think if you look at the higher frequency data which is coming out it's
very clear for example including Korea we are just continuing to see export
data coming in weaker. The PMI is also coming in weaker as
well. And notably if you look at the export
data you are starting to see I mean actually continued slowdown in the chip
spending or the chip sales index was it looks like the memory cycle is weak as
well which are a fluid flowing to and go into Claudia.
So I would say in general that DAX reason for being so cautious on the on
these markets not just the global sensitivity out there but also the fact
that the higher frequency data ISE is slowing and that should lead to further
earnings downgrades in these markets. What are you seeing in data in terms of
data in the likes of India. Because we have seen so much optimism in
that market. Yeah I think that's a great question.
I think as I as I mentioned India is a market where we actually see very strong
trending growth over the next three to five years.
And if you look at the domestic demand the DAX that's still fairly resilient.
So from it from a pure sort of fundamental standpoint it's a market we
like. But unfortunately I think the mark that
we have we're looking at the market which is at very elevated valuations of
almost 22 times. And when we look at DAX relate to
valuations compared to the region we are creating at record high valuation is
close to 80 percent of a IBEX FPGA index.
And when you strip out China even then VIX 70 percent plus valuation premium.
So it's largely a valuation risks plus some macro concerns about higher
inflation and targeting RBA policy. We're just keeping a somewhat more
neutral on the market. But from a more fundamental perspective
DAX a market we think could have very strong mid teens warning fraud or the
next three to five years.