Powell providing that shear in the market right now, are investors perhaps
misinterpreting what he's saying? Yes, you know, he could be tapering rate
rises, but the pivot is not here yet. I think you're absolutely right, because
based on what he said and based on Marcus reaction that we saw overnight is
that the markets were leading tours of hawkish another hawkish Powell speech.
And that was kind of proven, you know, wrong or mis inaccurate.
And I think that, you know, what policies mentioned is essentially a
balance of the getting the inflation down.
And also it takes time for these rates hiked to actually sector and also work
its way into lower inflation. And they're seen as well that.
He has also mentioned that, you know, rates are probably going to stay as long
as high as possible and the peak is actually higher than where it was
previously. So I think markets may be way in advance
in expecting a pivot. So you're saying that the rally we're
seeing right now is not sustainable going forward?
Well, I think it will have to be that the market is second guessing the Fed.
While the Fed is looking at data. So we need to be approaching a level
where markets are really looking at data and really analyzing that efficiency
come off, unemployment rate will stabilize.
And potentially, you know, we're seeing the non-farm payrolls coming up this
this Friday. So we need to see some more softer data
on the job front. Markets now pricing in a big rate of
below 5 percent. Is that what your assumption is as well
or not? Our base case is that inflation is going
to stay quite elevated, is coming coming off, but it will be staying quite
elevated into 2023. And in that episode, we do think that
the Fed terminal rate could be above 5 percent.
Okay. Well, Kristie, with that in mind, I
mean, you know, we look in five and a quarter percent, according to some
people here, and even more than that, the yield on the 10 year, three point
six percent. The moment I mean, that's come off the
yield quite a bit right now. But is there more juice to be had if you
wait around in your view, if you look at not just sovereign debt, but investment
grade debt in the US? Yes.
So things tend to provide opportunities and we do see that, you know, that the
opportunities going into the some of the themes going forward is recession and
reopening and recoveries. So this three themes provide
opportunities and we do see opportunities in the U.S.
Treasury space in the aging space. Now, even though we are entering, I
think in our expectations of recession remains high.
And even though the companies could be entering a recessionary period next
year, the risk of defaults of investment, great companies are very
low. And the strong balance sheets and the
ability to actually stand the economic shocks going forward will actually make
the investment great. A good opportunity for investors looking
for income. Yes.
Then you look at what the dividend yield.
I guess I think it's just under two on the S&P 500.
The thing is, the illegals have to be ratios, which historically is not cheap.
The S&P, I mean, China is cheap in Hong Kong, very cheap still.
But you're off to Garp and you're looking at growth at a reasonable price.
Now, that's the Holy Grail in many ways. Where'd you find it?
Well, that is where active management is very critical going forward and we need
to differentiate between. I think if you look at U.S.
Treasuries over global equities, then definitely the favor is in U.S.
treasuries. But even in the equities space, perhaps
we should be looking at student emerging economies where they are actually
valuing technology. And as you mentioned, valuations are
getting attractive in some of these companies and their strength in the
balance sheets does strong cash flows and also a dividend attractiveness in
some of these companies in emerging economies.
So you need to really differentiate between, you know, the dispersion
between the underperformers and the outperformance here.
And when the dispersion is actually white, the opportunities are even
greater. And we're seeing that in the space of
technology innovation. So regardless of and especially the
re-opening trade is going to happen, some of these valuations are actually
getting quite attractive. Of course, there are risks.
I think we are still seeing if the multiples and earnings still being
squeezed. Celebration still very low in China.
We've seen about one point seven trillion dollars
of inflows into Chinese stocks. I mean, do you see a potential
opportunity here? What might you be getting into?
Well, in the next few weeks, months, perhaps?
Well, definitely the real opening trade that did not happen.
And I think the expectations of the reopening trade, that will be actually
be forthcoming. I think we have seen some of this
happening, although it is not going to be a straightforward path.
So there are still, I think, strength in some of these Chinese equities space.
And China is the only, I would say, growing recovering economy in 2023,
although it is recovering into a slow growth profile in 2024.
But nevertheless, you know, if the Covid management policy does take a more
stable outlook and we do think that there are opportunities in the Chinese
aerospace, healthcare, education, for instance.