James Sullivan, let's get to your views on China.
It is a reflection of what we're already seeing at this point in time.
I mean, the demand within China is looking like lost about, you know, the
health of the global economy seems pretty resilient.
I think that's actually the narrative to speak to.
There's really three critical things that we're focused on.
On China, JP Morgan, number one, the continued strength in export data
continues to indicate that this narrative about supply chain decoupling
and supply chains moving out of China, there is no basis in the data for that
claim. So it is a narrative without any
support. And that's a critical recognition.
If we're thinking about the forward growth potential of the Chinese market.
So that's critical element number one, critical.
And number two is the fact that investor positioning on our estimates is now back
to an underweight position in China. So you saw that dramatic market move to
the upside from November to mid-January. And then we've basically seen weakness
since we saw investors square positions into mid-January.
We're now back in an underweight position.
The third leg of the stool is the so we reform that we're seeing, not
shockingly. If you pay people for different things,
they do different things. The likelihood of improving returns out
of the SUV sector is very high off the back of that reform.
You put all that together and it's starting to create a scenario for
significant outperformance of the China market on a medium term basis.
Why are expectations so that the B C will well feed in stimulus and that
we'll be supportive of Chinese stocks and we're already starting to see that.
I think, again, one of the critical narratives in China, there was an
expectation that this would be more a more consumption driven recovery than
we've seen in the past. That's not actually occurring.
And the data is supportive of the argument that the government is pushing
on the same lovers that it's pushed on historically, which is largely
industrials as well as construction. And you're seeing significant strength
in both, particularly if you look at construction, PMI in China right now,
it's at its strongest level since October of 2000, 18.
So we're going back to the same old growth model and that is triggering
significant upside to medium term projections.
James, these figures I was flattered to deceive even you could argue, given the
basic facts. I mean, Shanghai, for one thing, was in
lockdown at this time last year in various other parts of China were two.
And that's look, it's critical to recognize that we have so many
conflicting headwinds tailwinds at this stage and multiple elements of the
global economy. So I'm sure we'll get to central bank
conversations in a second. It's important to recognize, feel, feel
slightly sorry for your local central bank governor at this stage because
there is so much conflicting data for China.
The critical element from November of last year through now is we've already
had the re-opening trade. Frankly, for most investors, it was
about the 10th time that they played the reopening trade, so and faster and more
aggressively than what we've seen in other countries.
So now the incremental question is what is reality for economic growth?
We think we go back to, frankly, the same old drivers.
But particularly important to the narrative is we are not seeing supply
chain relocation out of China. And the recent export numbers are
indicative of that. So, James, what kind of picture is it
painting with the weak import figures here as well, telling us something about
the domestic economy doesn't actually then explain some of the frenzy we're
seeing right now. Food banks and brokerages, stocks.
What do you make of that and how do they reflect fundamentals, if at all?
So the incremental consumption trends in China continue to be somewhat
challenging, particularly relative to very heightened expectations.
What we're seeing right now is strength really in the core industrial
manufacturing space. What's interesting to me is the
divergence that we're seeing in the tech sector.
You're seeing reasonably strong tech exports out of China.
Again, indicative that we're not seeing significant supply chain relocation
that's coming on the heels of actually very weak tech exports coming out of
Korea and Taiwan. So you are getting this bifurcation in
the tech space here in Asia right now. If you think you're gonna be underweight
China because China is going to slow down, then you would be underweight arms
as well. So at the moment, we're overweight China
on the argument that we have very light positioning as we reform as well as
frankly, just a fundamental misunderstanding of the forward
narrative in terms of supply chain relocations and things of that nature.
So you put that together and we do see the opportunity for medium term
performance out of the China market right now.
I think the critical, critical element for emerging markets is really looking
country by country. The core risk space for us right now is
really ASEAN. And if you look historically, ASEAN as a
bloc has traded down anywhere between 20 to 40 percent in between the last rate
hike and the first rate cut. And so we're in a relatively dangerous
period of time for risk on trades, which ISE on historically has been.