Walter White has been in particular for Asia PAC in November.
You got to wonder whether Gaines is sustainable given that uncertainties
remain. Yeah, I mean, there's suddenly a lot of
uncertainties right now. But I think the I think one of the key
reasons why the issue that the six stocks have had a great month is because
of the weakening of the dollar. As you know, the inverse correlation
between the dollar index and the Asia Pacific stocks has been has always been
very, very high. And this month, as you rightly pointed
out, with a tremendous decline in the dollar index.
In fact, it came up from about 114 to the current levels, about 110.
So I think it's one of the reasons why. I think another reason is because
obviously the fear of the market is also taking the stock.
The recent measures by China was relaxation to Covid measures announced
after the RTS and even after last week, we haven't seen China actually impose
the kind of a Shanghai style lockdown that it had in February and March.
And I think the market's actually taking that positively going into 2023.
Of course, we have a higher rate environment.
What does it mean eventually for the economy?
What does it mean eventually for markets?
How much of that has been priced in already?
I think the first half will be very tricky because I think the the the the
when we look at what's happening right now, especially in the US, valuations
are actually pretty high. Right.
They're trading at close to about 18 times earnings and a 10 year historical
average is about 15 times earnings. Growth will likely come under quite a
lot of impact because of the fact that, you know, the for 25 basis points rate
hikes that we had this year, I think the full impact of that will only be
reflected in the first quarter of next year and that will suddenly feed into
the quarter results. And in that sense, and I think that will
certainly have an impact on sentiment as well.
You said earlier that Asia has benefited from the weaker dollar.
But expectations are the dollar will remain quite strong, at least for the
first half of next year. I mean, how will that play out then?
Well, the dollar will remain strong, but I think the dollar is more or less
peaked out. And I think the market has actually
started to price that. In fact, the market has actually
basically saying that, you know, with the mid-term elections coming through
and, you know, now we have basically gridlock in Congress itself.
That means that there'll be more impetus on monetary policy to actually try to
stimulate the US economy. That's likely to actually slowed down
quite dramatically in next year. And that's one of the reasons why the
market is actually pivot to pivoted towards a more dovish tilt in that
sense. That, in turn, is basically helping the
situation. Covid, let's have a look at your views
on credit is out of a question here as well.
In fact, in my post question, if you will.
What is the biggest opportunity you see in the credit markets looking into 2023?
Well, I think the investment grade credit is actually a pretty good value
right now. In fact, we do think that where the 10
year U.S. treasuries are concerned, they have they
are probably actually looking to actually peaked at all four to four
point one percent thereabouts. So at that point in time, we don't think
that this is likely to be more a weakness where the treasuries are
concerned and in turn basically means that for the credits, especially for the
investment grade credit, we do think that the current use actually very, very
attractive and that perhaps he might actually start thinking about extending
a duration to five years to perhaps actually lock in those years for at
least the next 18 months. I'm going back to what you were
mentioning earlier about the dollar. If we see a dollar turn around, how does
that really affect the way that you have your investment ideas here?
How do they change as a result? Well, I mean, if the dollar continues to
actually weaken, then obviously the emerging market bonds of the Asian
equities in Asia, Japan equities, the Asian market bonds will actually
suddenly be in a much better position to actually take advantage of that.
If the dollar in turn actually strengthens, then obviously the upside
for these bonds will actually be kept to a large extent, especially for Asian
specific equities as well, because again, the inverse coalition is actually
pretty high because the fact that a lot of Asian corporates actually issue bonds
in U.S. dollars.
And so if the dollar strengthens, obviously the local debt obligations
will suddenly increase in that sense. Covid, you know, we look it goes said go
ahead and perhaps a lifting of Covid restrictions in China and how that could
have a massive benefit for equities, which are Chinese equities.
And you know, the prospects as I've lifted things very nicely here.
The thing is, they also thanked France's Thailand, took him out.
At any rate, decision later not firing on all cylinders because we don't have
Chinese tourists that a lock lockdown removal and joint effects or should I
say, provides relief for everybody, does it not?
Absolutely. I mean, if the Chinese authorities start
to actually allow citizens actually travel out of the country again, then it
certainly will be a huge boost to tourism in this region.
And I think in Asia, it's basically Vietnam, Thailand and Singapore that
will actually benefit tremendously from the from the from the opening of the
borders from China itself. Thailand, I think, is actually coming up
from a very low base. Last year, you had only about zero point
four million. Is there point four million tourists
compare to the pre Corbett numbers of about 40 million or ISE a year?
So, you know, this year they're looking at the target of 10, but I think they're
likely to actually hit about 2 million. And with the tourists coming in, yes,
you're starting to actually get a much better current account as well.
Because, you know, talent has always had a very high current account surplus as a
percentage of GDP that was affected to a large extent when tourism actually died
last year. So with the coming of recovery of
tourism, that will certainly help to boost the current accounts again.
So can Asia outperform the US and Europe?
Can emerging markets outperform developed markets in 2023?
I certainly hope so, because I think Asia is trading at a huge discount to
the US. Right.
I mean, if you look at MSCI China, MSHA is actually trading at a 50 percent, 50
plus percent discount to the US. And that I think is the largest discount
over the last decade or so. At some point that is going to have to
close. Right.
And we do think that the Chinese valuations can said that will certainly
creep up and ready resolutions are concerned that will suddenly come off
Japan. You're like in Japan.
Yeah. Japan is interesting because I think
Japan with the recovery, India in the economy, with the with the recovery and
tourism coming into Japan, I'm going to Japan for a holiday at end, like I
think, what, three quarters of Singaporeans as well, they will suddenly
boost consumption in Japan. So I think to some extent, Japan is
actually going to actually benefit from that.
And on top of that, the very weak key selected boost will also likely boost
corporate margins over the next three to four months.