We have definitely seen those Asian sovereign bonds among the worst performers in terms of local currency debt. Are there any
opportunities around especially with cheaper valuations. If we see a turn around with China.
Well I think with the emerging markets now values being restored in a yield sense he's starting to get carried back. In fact
we're back to our long term averages if you look at emerging markets around the world. I'd say a pick up on your point just
before Asia is laced through this cycle. So it's more about long term Eastern Europe and Africa and yields here at the moment
where they've been hiking aggressively now for probably close to two years. Asia's coming late to the party. We've had much lower
inflation a lot more stable. I think that's had a lot to do with what's been going on in China. But we need to watch China right
now. The second half of this year if they're going to have any chance to hit their growth target they're going to have to
double down on fiscal and monetary policy spending here to really boost the economy. And I think that's going to have
reverberations around the world particularly for emerging markets. There should be an early sign of a pick up there. So
watch China right now. I think we're back. Have a mindset something like 2009 2010 where it stepped in and potentially
saved the world. So maybe this global slowdown could be prolonged as most people are predicting sort of 2023 recession
type numbers now. So in this case where you're seeing a little bit more upside surprises coming from China how would you
position for opportunities in the region. Well right now you can see that equity markets have already
started to pick up on this and they're bouncing on the bond markets. So it's probably a lot more supply coming to the space.
So we could see yields drifting a little bit higher here but we still haven't got inflation rolling through in China right now.
Producer Price Index has started to roll over API. But when we look at the China bond market still performing really really
well. So it's about a carry environment there at the moment. But that says some more supply coming through in the short term
there. If they're going to have another go at boosting the fiscal policy again
which are the markets around Asia do you see as the main beneficiaries if we do see that stimulus driven recovery from
China. Well definitely the inter linkages within the region are getting
tighter and tighter as we like to say. Asia is just getting more Asian into Asia. Trade is far more important than what they're
doing with the rest of the world these days. So picking up on your point there South Korea in particular Japan Vietnam those
type of countries that are very interlinked in that manufacturing cycle and heavy industrial they tend to pick up
straightaway as soon as you see this boost. Right now though it seems we've still got some other issues particularly with the
truckers strike happening in South Korea. They're into linkages with all the semiconductors and all the various parts for cars
and the likes that's creating another bottleneck for global markets. I think also another round of inflation that's probably
going to reverberate particularly the developed markets. The thing I think we want to focus on here is developed markets are
taking on emerging market like characteristics. You're seeing more volatility there. So we're asking ourselves are you getting
rewarded for the developed markets as much as you are in the emerging markets where the yields are substantially higher and
they've been hiking rates for close to two years now. How does that place a market like Australia which obviously with
the commodities and energy exposure has been looking like it's well-placed to benefit from an equities perspective and also
potentially from the stability of the sovereign perspective as well. But it seems like even in this market there's a lot of
repricing as to what these expectations from the RBA will be. Whether it is going to be neutral or whether neutral will
actually be a lot more restrictive than what we're seeing right now.
Well I think your answer at the end there was spot on. It's got to be a lot more restrictive at the moment but everybody has got
to back away from zero interest rates or yield curve control and move into the quantitative tightening mode. Even in Europe we're
seeing this where you thought it was unbelievable that they would start to hike rates again. They're having to play catch up
now as well. I think Australia is well-placed particularly with its export cycle likely to pick up in the second half of the
year and well into 23. Then I'd say the sovereign then has a lot of flexibility as they start to accumulate that trade surplus
again. So that's going to give it a bit of a buffer in terms of not hiking too aggressively. But definitely inflation is here to
stay right now and that's going to change central banks thinking. Unfortunately they're thinking that it's a demand
issue and this time it's a supply issue and they don't control the supply side. So it's going to be a very tricky space right
now. And the BJP seems to be thinking very differently from other central banks around the world. We have seen of course
these precious operations for 10 years. Jeebies. We're expecting another one today. Could you see more operations in tenders that
are above 10 years which we haven't seen in the longer part of that before.
Well in fact we've been writing about and saying that we actually think they need to disband this yield curve control
particularly as the yen starts to move higher and higher. We've already heard the BMJ starting to talk about the currency and
it's going to have volatility impact on the local local economic backdrop. We think that as close as you get closer and closer to
140 maybe even 150. We've been in this sort of environment with QE for over 20 years
now. Inflation is coming to Japan. They're going to have to think
about this just banning this yield curve control just as Australia quickly turn and to spend yield curve control.
I think we should think about the OJ heading in that direction as well. And then that'll that's probably the only thing that's
going to keep the yen from continuing to sell off.