I remember back in June you said look or the final leg of this bear market.
Where are we now. That's right.
How long is it leg like the final leg.
But it's a very extended leg. So I think here's the deal right.
We're not in the rush to turn. All right.
Bullish at the index level. We're still seeing a number of factors
that's moving around and could cause the volatility to remain high at least in
the near future. For example the Covid zero policy
whether there's going to be a clearer exit roadmap particularly after the
party Congress and whether the housing market could show some early signs of
stabilization after September and October which historically have been
proven to be better season for housing sales.
And then of course we know that PCLOB will start their audit inspections
starting from next week and whether that inspection could yield a positive
outcome. So all of these moving parts will
actually keep the market in the relatively volatile state in the near in
the near term. Right.
And arguably those three main potential catalysts are very slow moving.
You know you don't get a change in those three overnight do you.
So it might just take a long time. I would agree.
This is why as I said we're not in the very rush to turn.
All right. Bullish about at the same time.
We maintain our orbit stance in the Asia market.
We have been recommending investors to put more money in Asia market versus the
offshore space. This is because we're seeing the credit
growth pick up in the Asia market in the onshore space.
And that gives a lot more liquidity support for Asia's versus the offshore
space which is much more subject to the Fed tightening policy and the global
risk off sentiment. You have nine metrics.
How do you look at the Asian market in terms of gauging where sentiment is and
what are some of the elements maybe the top maybe a few ones that you could pick
that you need to actually have and it's necessary to have a sustainable rally.
That's right. I think trading volume first and utmost
is the trading volume. We look at the broad Asia as market
trading volume the index future trading volume which shows how people hedging
their position. And then the northbound trading volume
which is a good indicator in terms of Global's investor sentiment towards the
Asia market. So I think those would give you a good
sense about how excited and engaged investors are about Asia market in
general. And what do you think is keeping those
metrics constrained apart from obviously the Fed.
And you mentioned already Hong Kong. That money getting sucked out for
example. Right.
I think sentiment about the macro outlook is very important.
At the beginning of this year the government has said a 5.5 percent GDP
growth target for this year. Morgan Stanley is expecting only 2.8
percent. So there has been a lot of downward
adjustment in terms of expectation about job roles about your income growth and
about investment cycle is the expectation.
So all of these feed into corporate earnings disappointments so far we've
been seeing. Do you think we'll see more downgrades
in earnings expectations. Yes that's what we are expecting much
more. We are forecasting 8 percent earnings
growth in our base case for MSCI China for this year.
Consensus is about 10 percent. But given the uncertainty in the housing
market and whether the Covid situation would potentially last longer we see a
rising chance of earnings growth to decline to around meet single digit.
And what do you look at in terms of where those downgrades are coming from.
Because there's early season. I mean most mostly we're pretty bad but
a particular energy. That was the performer in some surprises
in technology too. That's right.
Technology companies these inter net companies have been engaged in very
aggressive cost cutting measures. So their turn turned out to be a bright
spot but otherwise it's been a rather broad based disappointing season in the
second quarter particularly on the consumer front.
And given that coming into the third quarter we have the unexpected
resurgence of it onshore with a number of cities getting into the lockdown
situation. So I wouldn't be expecting a lot of
positive outcome in the third quarters for consumption related earnings
results. Once things become more clear on the
consumption side to the Covid 0 what would be the first sector you think
you'd be excited over. What would you buy for us.
What looks mispriced now but you can't act on it until that happens.
Until the Covid zero policy gets more relaxation or at least clarity on it.
Yes I think the reopening theme has a number of beneficiaries particularly on
the tourism side and with the general consumption.
And surprisingly actually some of the health care names would also benefit
from more stabilized and normalized hospital traffic et cetera.
Are you expecting more policy clarity after the party Congress.
Not drastic change in the overnight fashion from a policy continuity
perspective because the easing measures for macro economy many of them already
in place in terms of boosting infrastructure in terms of stabilizing
the housing situation and for Covid zero policy.
Relax. And I think a staged approach is more
appropriate given that you need to first force the vaccination penetration and
potential do you want to roll out more medication availability and potentially
domestic MRSA vaccines. And also you need to educate the general
public for a reopening road map.