What do you think will drive this move forward in
stocks? Sure. You talked earlier about the cyclical
part. You know, you're seeing already, Chile
and Brazil have cut rates significantly more so than expected
in both countries as Hungary. So you're getting the
beginning of an emerging market rate cycle where, you
know, we have significant scope to reduce rates.
Brazilian short term rates are 13 and a quarter percent
. You know, after peaking at 13 and three
quarters percent, we see, you know, inflation
hovering in the around 4%. So there's just a
giant real rate that we can see coming down quite
a bit. Uh almost all of the money locally
. Uh As you can imagine, with such high
short term rates had gone out of the equity market
in to uh you know, short term deposits.
So there's a tremendous power in, in the reversal
of that money coming into the equity market. So
we're, we're very keen on that market. It's
pulled back a little bit since they cut rates.
So we think the uh the opportunity there is pretty
uh uh immediate, I'm sorry, there was a
lot of optimism when it came to the Chinese economic
recovery to boost the em assets. And yet that's
disappointed. So what can we expect for the second
half? Sure. Well, China, as you
know, your earlier segment mentioned a lot of the
problems that China has clearly the Chinese government is 100%
behind trying to stimulate growth. They've got two problems
. The external environment is tough and that's nothing but
they can do about that. You know, people
aren't buying as many TV S and cell phones which
are made in China. So that's a headwind that
if you know more, Stanley is correct. I'm
sorry, JP Morgan is correct. And we're going
to have a soft landing, maybe that gets better
, but that certainly should get better as we go
through the trough in global growth. And the government
is doing a lot to try to stimulate growth.
It's going to take a while to get confidence back
. Confidence was shattered during COVID. But we expect
it's going to take time but it will come back
. I just want to talk about a little bit
more about China and the fact that typically, of
course, we've seen China assets as being, you
know, such an anchor for broader em. Take
a look at this chart though because it's not just
China when it comes to the slowdown of trade and
kind of broader trade confidence. We're also seeing,
you know, weakness from, from South Korea,
from one from the Philippines. Uh those current account
numbers from South Korea are due today. So the
major regional exporters turned negative in 2023 in Asia.
Do you expect that weakness to persist? And is
this kind of an area that you would be trying
to limit exposure when it comes to Asia more broadly
? Well, it's interesting because if you look at
the data, certainly, you know, people like
Samsung electronics is one of the, you know,
the largest exporters had a terrible second quarter, you
know, operating profits down 90 some percent, which
is, you know, incredibly bad and the stocks
up decently on the year. I think investors are
starting to get the view that we're getting past the
bottom and that we should start, you know,
thinking about what's going to happen in the future and
, and then as a, you know, discounting
mechanism, market likes to be ahead of itself.
China doesn't have that advantage. I think investors are
so rattled and shaken by some of the moves that
the Chinese government has made that it's more of a
show me market, people are going to wait and
see the growth before they're willing to reward it.
But the other markets, I think people have gotten
ahead of the bottom and are expecting better times,
valuations are compelling though, right? That's undeniable when
it comes to China. At what point, what
sort of catalyst would you need to see to find
them compelling enough to, to change, to change
the waiting that you have on China. Of course
. Well, you know, I think part of
the problem with China for us is long term.
It's just not as interesting a story as some of
the other markets. You know, it's a demographically
shrinking workforce. It's a country that's grown quite a
bit over the last 20 years. So, you
know, the next 10 years in China are going
to be more of a developed market type growth experience
. So, you know, we've been underway China
for that reason, more of a structural reason,
you know, and cyclically, we think there's probably
a lot of money to be made in China.
Stocks are very cheap and the government is pressing for
growth and inflation is non existent as you guys talked
about earlier. So what are structurally interesting em to
you right now? Well, if you look at
places like Mexico where, you know, supply chains
have really realigned and Mexico's really the inflows into Mexico
have been pretty substantial. They just posted a 3.2%
GDP growth for the last quarter, which is better
than just about anywhere. They focused a lot on
the auto industry exporting into the US, which has
been great business. And we think that will continue
to be Indonesia is another place that is getting a
lot of attention because it's a different sourcing area than
China cheap labor as well. Big population, a
lot of resources, they actually benefit from a lot
of different trends. You know, they're big players
now in the business for their nickel assets. So
that's another area that we're pretty excited to look at
. We've talked a lot about the super peso and
the incredible rally that we've seen in the Mexican currency
. What happens when the central bank starts to move
in the opposite direction and we start seeing cuts there
and how does the projection for the dollar factor in
? Well, certainly Mexico has been incredibly fiscally responsible
. They didn't really put up any big COVID spending
programs. So, you know, even though it's
a, you know, left to center government,
they are not big spenders and they've always kept a
pretty tight ship. So the peso has been rewarded
from prudent management and I, I'm not sure you
can say the same thing about the U SI think
the Fitch downgrade was a wake up call for dollar
investors. Uh So, yes, Peso has been
very strong and, and certainly, uh things like
that tend to correct, but we see no reason
why the Peso should be weakened against the US dollar --> .