Before I ask you what do you think and how you think the economy is.
How are you. Very good.
Thank you. Here.
Very nice to see you. OK let's get an assessment of the
economy since the last time we talk. Can't remember the last time we've seen
massive downgrades. Yes a lot of downgrades.
I don't miss a quarter left. Do you think though the economy's bottom
at this point. I'm sorry.
I'm a lot less confident. OK then my views while reason being you
know the economy is still being held hostage by Covid and also by the
property curbs. You know people are not buying
properties at all. And so you know because of that you know
any forecast you know based on the vagaries of Covid control is basically
groundless in my view. So you know so I think the base case
should be that you know the public control would continue for some time
even after the big meeting in October. And I think that would put downward
pressure and more importantly put uncertainties into the system.
It makes it very difficult for people to include their expectation going forward.
What are your expectations for the party Congress.
Right. I think there's a growing sense that
something's going to change with Covid 0.
That's a hopeful year. I would say it's wishful thinking in the
sense that you know if they really want to relax the controls they can't relaxed
you know much earlier than this riser. They shouldn't be using.
No one should be using the big meeting as a sort of a watershed event.
So it is a meeting of continuation and those consolidation and also the senior
leaders of China is out of the country already.
And I think that is the first time in I know in my memory ever.
You know they went out of the country for a national visit before this kind of
big meetings. OK I guess one last thing on Covid 0.
Why do you think they're sticking with it.
And why do you think they'll continue to stick with it.
Because you answered that question. You get almost everything else
correctly. Right.
As far as academics policy that's why it's hard to say.
Right. So my guess is as good as anybody else's
guess. But I would say that because the way the
conservative approach when it comes to cover let's face it.
Well because 99 percent of the Chinese population population hasn't contracted
Colbert so people probably not as immune as they should be at this stage.
So even though the cold the virus has mutated to a weaker form but it's hard
to sort of you know be certain you know what kind of effect it had on the
Chinese population. There has been some debate on what China
is actually entering into some sort of recession.
Why would a recession in China look like other parts of the economy already in a
recession. I think it's a grocery recession in the
sense that you know you're seeing growth read off of Chinese GDP coming down.
ISE already in the first and second quarter especially in the second
quarter. It's very very close to zero.
So you know because of the lockdown and also because of know ISE of weather
weather problem and power outage problem.
So I will say that you know some sectors are really in recession.
You know for example property sector. So property investment is down over 7
percent year on year and it's still decelerating.
The retail sector is obviously in recession as well.
You know people are not spending. People rushing to pay off mortgage and
people are rushing to save. So the the the the increase of banking
deposits in the banking system you know has been one of the fastest in recent
years. So you know all of this is seeing that
you know yes some part of the Chinese economy is clearly in recession but then
some other parts are doing OK. You know for example Chinese exports has
been very very strong. And I think that surprised everybody in
the market. And also the Chinese manufacturing
sector seems to be holding up fairly well to make Chinese products to export
to foreign countries. Well speaking of exports a weaker
currency helps you do that. What do you make of the weak currency
now. I mean it's weak against the dollar.
It's not as weak against other the basket for example is there do you think
there's a line in the sand. What more do you think authorities can
and will do. Well the lines that have been used to be
seven. Right.
So now that that's gone. Broken.
Yes. I'll cancel the next office.
Seven point two. No one should be surprised by it by the
weakness in the yen. Because fundamentally speaking you know
the economic growth is slowing down. So even though this year for example we
have a record twice the plus year for some reason the Chinese forex reserve is
not building up. So that's putting pressure on the
Chinese yen. I know.
So you know because of the divergence of monetary policy between China and the US
that is also putting pressure on the Chinese yuan as well.
So the Chinese obviously has a easing bias while the Fed is continue to hike
very rapidly. So all of those saying that you know the
the pressure on the end would continue. What do you think that at least when it
comes to. What are policymakers makers most
uncomfortable with at this pace. There's so many things that is you know
most people are not comfortable. But then for some reason they're
unwilling for example to relax. They're called it control.
So because the the effect on the population is unknown.
So you know if the Fed hiked too aggressively for example then the
falling demand will continue to spring. Then it would put even further pressure
on the Chinese exports which has been holding up the Chinese economy so far
this year. So that is probably one of the few
sectors that is still growing this year. And also the property sector I think is
selling for like a slow train wreck that is happening.
Ryssdal Property investment is down property sales is down.
Basically going into August for example the high frequency data is showing that
you know in many of the Chinese cities probably sales is down especially in the
top 30 Chinese developers. You know we're seeing slowing property
sales across the board. And so that's that has the effect on the
upstream and downstream of the property sector and also have a huge impact on
Chinese consumption. In terms of how the market prices this
slowdown in the property sector and a train wreck as you describe it.
Do you think if we priced that in already though I mean everything from
credit to price to book. What I'm trying to get to is we know
it's a slowing story but it's it. What else have we not seen here.
It has been cheap for a year or so as in the last year.
Lee last year when we forecast a slowdown or a correction in the market
no one wants to believe us. ISE or if it happened it broke the 3000
level earlier this year. So I would say that it is cheap.
ISE But cheap is not the reason to buy in.
ISE Earth is cheap enough. So if you if you look at the market in
price risk premium and compare it to the levels in the history ISE is still
higher than 2012 when when the US start the temporarily starting to starting to
tighten and camping and then as it is is actually not as cheap as 2016.
After the 5000 Paul Allen stock market bubble crash.
So I would say it is cheap but it has been cheap for a year and cheap is not
that good. A good enough reason to buy.
So I guess we've been asking all our guests there's what do you hide.
Right. Have the Fed this week not many central
China. Where do you hide.
Year globally. I mean when there's global risk you know
there is still rising rates. So it's hard for for us to recommend
clients to go into the market and just close your eyes and buy and be
courageous and catch the falling knife. It's hard to make that kind of
recommendation. But normally when you know in such an
environment in a risk river is a risk environment then we tend to see the US
dollar raising the VIX either marketing tribal authority raising an emerging
market currency weakening. And also maybe you know some of the for
example the Chinese bond you know because the populace is still easing.
So the bond you the Chinese bond you may make all time low at some stage.