Right. What's your take? What's the big picture
for you? It's a great day to come on
, particularly for a market grinch like myself. I
think we got a little bit ahead of ourselves in
November. I do think that particularly in the fixed
income market, there was a little bit of a
short squeeze uh in longer duration type of exposures.
Um Global growth is gonna slow next year as we
, as we all know, somewhere to around 2
2.5% from around uh 3.5% this year, the US
1.5% next year, I think probably less actually.
And so, and a lot of and majority of
that is still going to be driven by India and
China. Um so yes, growth is slowing.
I think the the two main things for next year
. Number one is I think we move from our
rates volatility environment which we've had this year. Rates
have driven everything. What are the fed going to
do, et cetera, inflation to a growth driven
volatility regime next year. You know what the actual
drawdown impact going to be on growth. Um You
know, as I said in terms of the numbers
, it doesn't look particularly optimistic um particularly for,
for the US. And the second main thing is
, you know, moving away from cash this year
, it's been all about short duration cash with yields
, moving lower cash looks less attractive. So investors
will need to put that to work. That doesn't
necessarily mean to take a lot of risk, but
certainly cash is not as attractive. Bonds will be
a better buffer in, in your portfolio. And
so you need to take some risk in certain places
. But I think for the most part, stay
rather defensive, at least for the first half of
the year. So is that so bonds, I
help us craft a portfolio here right now. How
big of a bond sort of allocation should we have
? You're trying to tempt me to say 6040 you're
going to ask me about performance over the last two
years with a Barbell highly diversified portfolio a little bit
Barbell ballast, constructive, constructive. Yeah, I
I mean, where we are in terms of fixed
income is we're not moving that far down the curve
. We've seen a lot of interest in longer duration
, 20 plus year, huge inflows into, into
high yield over the last month. We're certainly not
that constructive, but I think you need to take
a little bit more duration risk in sort of the
the belly of the curve, the sort of 3
to 7 because as I said, short duration cash
doesn't look as attractive as it did last year.
So, you know, when you, when you
move away from that environment bonds do become a better
buffer in your. So you would suspect that 6040
would actually work better this year because as we all
know, it hasn't done very well over the last
few years. And what's the treasury, what's the
E component to hard currency bonds? We've seen a
lot of interest in em debt does look a little
bit expensive at the moment in terms of emerging markets
are more optimistic on the actual equity part of the
, the equity part of the equation there. It's
been all about EMX China this year as I think
, as I think we all know, um but
you know, how much worse can the sentiment around
, around China get? That's, that's kind of
the question we've seen foreign investors continue to sell uh
since January, you know, at some point,
we're going to have to get a tactical bounce,
right? But what do you think is behind this
? And just this week the last few days has
really seen massive outflows sharp pull back in price.
What do you think is behind the current, let's
call it route and Chinese equities? What are you
saying? I think it's just positioning into next year
, you know, in terms of, in terms
of the positions in China, they do tend to
be quite volatile from a foreign investor perspective, we
see, you know, investors moving into the large
cap s in the US very quickly into the ads
out of the ADRS. So, you know,
I don't think, I don't really think foreigners can
go that much more underweight at this point. And
I think what we mentioned last time this disparity we
start to see between northbound and southbound. It does
seem like investors in China are buying into China Tech
but foreign investors actually selling, selling offshore China.
So they're waiting for some kind of catalyst probably from
the PBOC, but it doesn't seem to be coming
any time soon. So what about Asia flows?
I mean, what what's gonna be the key driver
? Is it still going to be higher rate differentials
of the U? Is it still a stabilizing Chinese
economy that's going to be really driving flows? I
think a little bit of both in terms of Asia
, you know what we are seeing is this real
shift from broad beta type investing, you know,
before it was all about just by Asia Japan and
then get some extra China through idiosyncratic ETF. Now
it's, you know, we have to take a
granular approach, you know, do you overweigh India
, Japan, Malaysia, Indonesia, all these kind
of places, no one's really buying the broad type
of investments other than EMX China, but then they're
putting on tactical overweight, underweight in in their satellite
portfolios through single countries. So I think that will
, we will continue to see a divergence em is
in a very different place than the US in terms
of where it is in inflation and rates, the
possibility of cutting rates. And I guess by the
way, we don't think the fed are going to
cut rates five times next year. Would you talk
about that? What's funding that trade around China is
the Japan is the India? I mean, you
know, where you're seeing that really stark reality is
between the underperformance in China and India, right?
Just given that we're still talking about all time highs
in India here right now. Do you think this
is more than just a tactical thing? Is this
something that's a longer term trend? Yes, I
definitely think it is a longer term trend. You
know, again, investors are looking for when you
look at Asia, where is the actual longer term
growth going to be? You know, you can
look at it as simplistically as where GDP growth in
the sixes sevens versus in the fours plus, you
have the extra geopolitical risks of China. So,
you know, overall long term investors want to be
in India right now. Ok. And Japan and
the word inflation is associated with Japan now, will
it be next year? And what is the position
with regards to Japan as an alternative still? Yeah
, I think the the the push back on our
overweight. Japan coal has been, it's very consensus
which I think it is if you look across,
you know, banks and other asset managers. But
when we actually look at the flow and positioning,
we, we don't, we don't see any signs
that investors are overweight. Uh Japan at this point
, we we've kind of seen the move back to
neutral positioning over the last year after years and years
and years of selling. But, you know,
I think we're looking at phase two for Japan next
year, which is OK. Investors have got back
to sort of neutral waiting in terms of broad beta
positioning, Nikkei topics. Now it's time to go
a little bit more granular. You know, what
are the sectors? Where are the factors that you
like? Is it res you know, is it
minimum volatility? Is it JP X 400 or is
it an active type of positioning? And then also
do you hedge or not hedge your JP Y exposure
for us? We want to be owning JPY at
this point, but not all of our clients can
do that obviously. So how do you, how
do you do that now in a more granular sort
of fashion here in Japan? So does that mean
less upside sea on an index level? Yes,
I can. I guess the question. Do you
have an ETF for that too? Good question planted
. Yes, we have, we have sector ETFS
, we have some factory etfs. The one we
prefer now is JP X 400. It is a
screened return on equity ETF we have been pushing topics
for the last couple of years because that is the
exporter type of index. It's very sensitive to JPY
depreciation. Now that that's kind of we think that
that tail wind is coming to an end. It's
time to move into things like JP X 400 maybe
some re type exposure value, high dividend type of
exposures on the sector basis. OK. You excited
about next year from a strategist perspective perspective. Not
, not just personally, I'll let you know,
I think, I think again that the trend is
going to be for fixed income next year. Um
You know, I'm more of an equities guy so
it does kind of pay me to say that a
little bit. But I think, yeah, I
think investors continue to move into, into bonds uh
after a very, a very tough few years.