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Amidst Volatility, Boring is Good

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/us-fed-interest-rates-inflation-earnings-consumer-sentiment on June 9, 2022.

US markets remained volatile and on a downward trend as inflation concerns heightened. With that, the US consumer is beginning to feel the pinch of rising food and energy prices. What then does this mean for earnings in the coming quarters and has this been priced in? Our CEO and founder, Tony Nash answers these questions.

Show Notes

WSN: BFM 89 nine is seven o’ six Thursday the 9 June. And of course you’re listening to the morning run. I Wong Shou Ning together with Philip See. Let’s have a quick recap on how good global markets closed yesterday.

PS: US markets closed in the red. The Dow was down .8% SMP 500 down 1.1%, Nasdaq down zero. 7%. Whereas over in Asia it’s been a mixed bag. The Nikki was up 1%, Hong Sang up 2.2%. China composite up zero 7%. I think on the back of China easing a bit on the tech regulatory concerns. However, in Southeast Asia, Singapore is down 0.2%. FBM KLCI also down.

WSN: .1% so for some analysis on what’s moving markets, we speak to Tony Nash, CEO of Complete Intelligence. Good morning, Tony. Please help us understand what is happening in US markets because it is another red day today. Why are markets so choppy this Thursday?

TN: I think people are awaiting the CPI print what’s going to happen with the inflation announcement because that number really helps to indicate if the Fed will accelerate their plans of tightening. So if the CPI runs hot, then we’ll see them accelerate potentially. If it comes in as expected, then they’ll stick with the plan that they’ve got.

PS: So the plan is to 50 basis point hikes. If you see it move higher, are you talking about it hitting 75 or like extending it for a third 4th hike?

TN: If it’s higher, we could potentially see it hit 75 maybe in June or July. But certainly we’re looking at another hike in September that’s probable right now and then maybe a 25 basis point in November. So let’s say we saw come in at nine or something like that for a developed economy like the US. These are people who normally look at inflation, 1%, one and a half percent. So 9% inflation is just something that people have not seen for a long time. And so this is really damaging to people. Wages are not very flexible here. And so I’m sure from the Malaysian perspective, you see that it’s damaging people here in the US and it actually is because wages are not as flexible here as they are in other parts of the world. So if we see CPI come in high, then you would see the set accelerate. If it comes in at eight, let’s say less than 9%, they’ll stick with the plan they have. If it comes in lower, say seven-ish they’ll still stick with the plan they have and continue to fight inflation to get it down around 2%, maybe sometime in Q1 in 2023 or something.

WSN: Okay. So let’s stay on the topic of the US economy now. Bloomberg runs a model, runs different models actually, and they say that there’s a 25% chance of recession in the next twelve months, but a 75% chance by 2023. Do you share the same view but.

TN: A 25% chance of a recession is just a hedge. Right? I mean, that’s just saying maybe it’ll happen.

WSN: It’s a chicken call Tony. It’s like being chicken.

TN: So when you look at what a recession, two months or two quarters. Sorry. Of negative growth. Right. Well, we had a negative quarter of growth in the US, and Q one of 22. Will we have a negative quarter of growth this year? Unlikely. Or this quarter? I mean, it’s unlikely because of the reasons for negative growth in Q one are not the same reasons they would be this year or this quarter. Sorry. So going forward, I don’t necessarily think we’ll have a recession, but I think it will feel like a recession to a lot of people because over the last year, year and a half, we’ve had higher overhiring in a lot of industries like technology, overhiring where companies have been afraid they wouldn’t be able to get the talent they need. So they overhire people. They’ve paid people a lot of money. So sectors like tech will likely continue laying people off. They’ve already started, but they’ll likely reassess their wages as well as they realize that they don’t need as many people as they hired. And of course, there will be other effects if tech start laying people off more broadly. So we’ve already seen housing housing in the US.

There is effectively no new mortgage applications going through on that in the US. So the Fed’s target for housing has kind of been achieved really quickly, actually. But it doesn’t necessarily mean there’s a recession. So things will feel like there’s a recession. But I’m not sure we’ll necessarily technically be in a recession.

PS: So let’s just build on your feelings, Tony, and translate this macro numbers to earnings. What is your expectation in terms of quarter two earnings? Do you expect them to be substantially weaker and how will that translate into equity markets?

TN: Absolutely, yes. Definitely substantially weaker. I mean, look at what happened to say, Walmart and Target a couple of weeks ago when they announced their earnings, they were way down. Why? Because they had way overbought inventory and they had bought the wrong inventory. Okay. So they’re paying for that now and they’re going to have to discount to get rid of that inventory. Right. I think people in a lot of industries because of supply chain issues, they’ve overbought things. And in the meantime, preferences and markets have moved on. So they’ve overbought things and they’re going to have to get rid of a lot of inventory. I think Target and Walmart got out there very early to be able to have their equity price hit hard early. But other companies will come out in second quarter and they’ll admit the same thing. So we’ll see margins really compressed. And because of that, we’ll start to see people announce more layoffs because again, during COVID, investors were very charitable to executive teams, meaning they were telling the executive, look, just stay open, just survive as a company, do whatever you have to. Right now, we’ve got markets that are normalizing.

Investors are being more scrutinizing as they should. They’re saying, look, markets are normalizing. You have to perform like an executive team should perform. You have to perform like a company should perform. So investors and markets are going to be harder on companies in Q two.

WSN: But Tony, does this then mean that when I look at the S&P 500 index, which is probably the broadest barometer of the US economy, it’s down 13 point 65% on the year to date basis. Can we expect further weakness or has this already been priced in?

TN: I don’t think it’s been priced in necessarily. I don’t necessarily think we’re going to see another 13% down, but we always hear that things are priced in. And then when events happen, we find out they’re not priced in. I don’t think it’s priced in. I think there’s more pain to come because people are realizing that they’re basically overpaying for the price of equity. Right. In a company. And so we’re going to see pressure put on valuations, and that’s going to hurt a lot, especially in tech. So we’ve already seen pressure put on valuations in tech. And you saw companies like Facebook who are just throwing off cash still and their valuation is compressed because people have just woken up and said, look, it shouldn’t be valued at that. Right. So we’re going to see that more and more, especially in tech, but also in other sectors.

WSN: So where should we hide, Tony? Will it still be in the commodity space? I mean, oil is up 2 and a half percent this morning.

TN: At where oil is. WCI is trading at 122 right now. Brent is north of that. So it’s possible that we see another 20% rise in crude, but it’s really thin air where it is now. So I think crude price really depends on the supply side. And so can OPEC pump more? Not much. Will things in Russia resolve? Maybe probably in third quarter or something like that. Right. So we really have to look at what are central banks doing? They’re trying to ratchet down demand. Right. And so if they can successfully ratchet down demand, then that will have an impact on true prices.

PS: Tony, I would love to get your view because you’ve seen a different vantage, especially in emerging markets, particularly Southeast Asia. If you saw recently WorldBank has scaled its forecast on global growth and has even highlighted the asphalt is very much vulnerable to stack flat, even recessionary pressures. What’s your view? What’s your advantage in terms of investment in EM markets, especially in Southeast Asia?

TN: Yeah, in Southeast Asia. I mean, look, in Southeast Asia, sadly, Myanmar is going to have the toughest time for the next year or two, right? I mean, we all know the political issues there. I love Myanmar, but it’s going to continue to have the toughest time, I think of the say more developed Southeast Asian countries. I think Thailand is going to continue to have a hard time Partly because of supply chain issues. It’s kind of intermediate point and if supply chains continue to stay strained and tourism continues to be relatively slow in Asia I think Thailand is going to continue to have a tough time. I think places like Malaysia, Philippines, Vietnam, I think they’re in a better position and I don’t know that you’ll necessarily get excessive gains in those markets But I think there’s more stability and more same maturity and leadership in those markets. So if I were to look to Southeast Asia on, say, a country play, that’s where I would look. I would be really careful to look at things like excessive consumption, these sorts of things. I think for the next year or so we’re going to be looking at real stables.

What do people need to live a really boring life because we’ve had this super exciting roller coaster for the past two years and we need to get back to normal and we need to look at what are people going to consume Just to have a normal day in, day out life.

PS: Boring life then.

WSN: Yeah, boring is good.

TN: I love that. Yeah, we all need a little more of that.

WSN: Thank you so much for your time. That was Tony Nash, CEO of Complete Intelligence, saying borrowing is good, we need to get back to normality which means that what investors should be focusing on Perhaps consumer staples Versus consumer discretionary and going back to core fundamentals. Looking at valuations, I think you hit.

PS: The nail on the head core fundamentals because I think investors have given companies the past throughout the pandemic most scrutiny now whether the question will be this will show dispersion and earnings variance between those high earners and low performers Will be a big question Mark as there’s more scrutiny about how you perform in this normal, boring time.

WSN: Stay tuned. That BFM 89.9.

Categories
Week Ahead

The Week Ahead – 21 Feb 2022

We have the PPI numbers from the US and China recently and we talked about its impact on the inflation, CPI numbers, and whether it’s peaking or not? We also looked at the containership traffic and supply chain changes from China as compared to other locations. And with improvement in global mobility, what does that mean for the oil and energy market? We also discussed volatility and what to expect this week?

This is the seventh episode of The Week Ahead in collaboration of Complete Intelligence with Intelligence Quarterly, where experts talk about the week that just happened and what will most likely happen in the coming week.

For those who prefer to listen to this episode, here’s the podcast version for you.

https://open.spotify.com/episode/04ATdMquZbUb0Lm4RVLJkS?si=bf093f6490084a8e

Follow The Week Ahead experts on Twitter:

Tony: https://twitter.com/TonyNashNerd
Sam: https://twitter.com/SamuelRines
Nick: https://twitter.com/nglinsman/
Tracy: https://twitter.com/chigrl

Transcript

TN: Hi everybody, and welcome to The Week Ahead. Today I’m joined by Tracy Shuchart, Nick Glinsman and Sam Rines. Albert couldn’t join us today, but he will be back. He’s still friends with us. So before we get started, I’d like to ask you to subscribe to our YouTube channel and like this video. That obviously helps us with visibility. It helps you to get alerts when new videos are out. So if you don’t mind, please take care of that now.

So this week we had a lot going on. So we had a very strong PPI print come out. We had Chinese PPI come out. So the US print came out at 9.6% year on year. Chinese PPI came out around actually the same level, 9.1% down from 13%. We had US retail sales search at 3.8%. It was 2.1% was expected, avenues were down on the week, crude was sideways, precious metals were up a bit and the ten year is back below 2%. So what did we say last week?

Well, Sam, last week said that Monday’s Fed meeting was a non-event. Nice job, Sam. Nick said that the Fed wouldn’t fight Volatility. Nice job, Nick. And Tracy two weeks ago, since that was the last time she was with us, said the crude would trade sideways but be pretty volatile, which it has been. So nice job, guys. You nailed that stuff. Right on.

So let’s start with PPIs. So it looks like producer prices are maybe turning over. I don’t know if it’s too early to call that, okay. But based on the Chinese data and the US data, it looks like those PPIs may be turning over a little bit. So what do we think about that? Are we going to see PPIs moderate? First. And what’s the impact on overall inflation, secondary impacts, ultimately CPI and all that stuff? So Sam, do you want to get us started?

SR: Sure, I’ll give a little off. I think China tends to lead in terms of PPI, right. So when you begin to see their PPI go from 13 to nine, give or take a few tenths, that’s a big deal. The second derivative is extremely important when it comes to input costs. We all knew it was supply chain. We all know it’s supply chain. And we all know that the supply chain is not fixed yet. So the pace of that decline is unlikely to continue at 4% month over month or whatever it might be, but it is going to continue to dissipate, at least on the margin, at least call it moderately. That’s important.

That does feed in CPI at some point. And I think one of the interesting points that we talked about last week was housing. And when you begin to see some of these numbers come down on PPI, you begin to get lower input costs to new starts, et cetera. That has a pretty interesting feature effect.

NG: What did you think about the San Francisco Fed paper on the owner’s equivalent rent? Which I thought was reasonably hawkish in terms of having a half percent impact on core CPI.

SR: Oh, if you’re asking me, I thought it could be hawkish to a degree, but at the same time, it was also in my mind a single that was almost a core thing to them. So something that they’re going to cut out.

NG: It does lag, Zillow and apartment list.

SR: Yeah, it always will. Just on a mechanical basis. It’s impossible for the Fed to get a calculation that’s going to keep up with Zillow or any of the other indices. I thought it was almost one of those. It could be really hawkish if they were to incorporate that into their framework. What I would say is it’s more likely that they’ll go in the European direction, which is just cut it out completely in general from their inflation metrics, which is dovish.

NG: Interestingly.

TN: Let’s move on this a little bit. Sam, it seems to me that you’re indicating that PPI at least is peaking. Is that fair to say?

SR: It feels that way? Yeah, it feels that way. Okay. It feels that way. It certainly looks that way in China. I could take a month or two to feedback into the US, but I would say it’s peaking.

TN: Okay. Now, Nick, I think you take the other point of view where this is sustainable. I don’t want to put words in your mouth, but is that fair to say?

NG: Well, actually, I think last week I was mentioning that the inflation outlook is going to level off. I mean, I agree with Sam on China PPI leaving us PPI. I was just fascinated by that particular owner’s equivalent rent housing, part of the CPI composition. And actually in Europe they’re looking to introduce it, which was a paper this week, which again would be quite a surprise.

I just look at not just PPI in China as a leader. I think I’ve seen people say it’s sort of three to six months lead time before it impacts the CPI. So we could have to wait a little bit longer to see it come through. But I just think there are other things in the pipeline and we had this discussion today that suggests to me that financial conditions are of their own making beginning to compress, and if the Fed start to do stuff will compress further and that will have a negative impact on liquidity, whether you define that by balance sheet or as we defined it, we had a conversation day reserves, bank reserves, and I think that’s where I see this peak.

don’t know whether we finished, but I think we’re going to Plateau, if not start to turn around. However, it’s where we finish, where the authorities want us to finish 2% above 2%. I’m sure they want some inflation to hit the debt loads, but the question is where do we finish it? And can you fine tune that accurately? Yeah, that’s not an easy thing to do.

TN: So staying on the China PPI issue, I think if we look at, say, container rates from China and even Port backups from China, if we look at the chart that we’re showing now, the dark blue line is container traffic at major ports from China. So it looks like from Ningboy that the container traffic has subsided quite a bit over the past month. And one would think that that would take some pressure off of supply chains. So if you look potentially at PPI peaking and if you look at the kind of order to receive rates of some of these multinational companies, it’s running in about nine months from, say, China, Southeast Asia to the US hit here in six to nine months, or will it hit later?

Are you guys seeing those dynamics in your studies and with your clients? Do you think that the freight delays and the freight out of China is declining? Tracy, what do you see?

TS: Yeah, I mean, I think the data is a little bit skewed because of the Chinese lunar New Year. But that said, if we do see some pressure let off of China, that will eventually show up here, I’ve always said it’s going to be 2023 before we kind of see some supply chain issues ease. Because what I’m looking at in the industries that I particularly look at, which is materials and energy, I mean, that’s still hitting those. In fact, it’s just starting to hit the industry as far as pipes are concerned, in parts of that nature.

So if we do see that subside, it will eventually end up here in the US and North America. But again, it’s going to be on kind of a lag time.

TN: Right. So China started stimulating or easing, say, last month with a small rate cut.

TS: That’s what I was going to ask you about. Tony, you and I have talked about CMY for years now, right. In the past. And so I wonder what your thoughts were with China beginning to simulate how important is that to how important is that that they tackle the appreciating CNY? There are a number of issues.

TN: I think the appreciating CNY is an issue. I think the stimulus is an issue for a number of reasons. So the CNY is important. What they’ve done over the last two years is appreciated the CNY to accumulate commodities as commodity prices rose. They appreciated the CN so they could accumulate copper, so they could accumulate crude oil and food and other things. There was a lot of worry about food security through Cobain in China. And so they accumulated that stuff and they have a lot in storage.

So with all the political events happening this year with the party Congress in November and other things, it’s really important for them to start to stimulate and also to make things easier on exporters. And that’s why it’s important to devalue the currency. It’s a controlled currency. So it is, in fact, a devaluation that they’ll do.

So they have to do value to get those exporters on sites and to start accumulating, say, more dollars than other currencies. And so with that devaluing and the easing will also come fiscal spending as we’ve talked about in Q two and into Q three before that party meeting. So it’s a really important time for China to make their currency cheaper and to get money out into the channel. And the money transmission mechanism in China is a lot more direct than it is in the US. It’s a lot more direct.

So the PPOC says get money out and the banks get money out. It just happens the old school the way it used to in the US. Does that make sense to you all?

TS: Yeah, absolutely.

NG: Nobody does.

TN: Okay. Anything else on China and the impacts of, say, China easing while the ECB and Fed are tightening? Any concerns there.

TS: Does that mean that we see a rotation somewhat into Chinese equities?

TN: I think that’s possible, right. Although there is some currency risk there. I think the growth, the pent up demand and the growth there may be an opportunity. It really depends on Horizons and it’s something we have to watch. But I think it may be an opportunity for some sort of rotation to China. Again, not in the main, but at the edges of a portfolio.

NG: People have been waiting for that for a couple of months and it’s still not happening. So Tensor is now under investigation by the USDR. Evergreen has just been delisted from Hong Kong and I think there was another set of technology restrictions imposed by the CCP. So every time you think this could be the right time bank.

TN: But Chinese technology is for China and it’s not for the US. Necessarily. Most Chinese companies are really focused on the domestic and the regional market, not necessarily on the US.

NG: Understood. The Chinese tech has been a big expression of interest by the West Coast, and that’s where we got to watch.

TN: Okay. And Tracy, you tweeted about global mobility earlier this week, and so we’re showing that tweet now. So I’m curious, what’s your thought on mobility and the impact that will have on global oil demand?

TS: I think that we’re going to see I think as we’re seeing these countries that are slowly lifting demands, especially like Switzerland, that just lifted all their mandates, including if you’re flying to Switzerland, you don’t need a test anymore. You don’t need a backstash. I think that this will be a global trend. Right? It won’t be. Even as we head into summer, which is high season demand for the Northern Hemisphere. Demand is almost at depending on who you ask, it’s almost at 2019 levels, if not above. And so they’re looking at May to August demand increasing by 5 million barrels per day at over 103,000,000 barrels per day. I mean, that’s a lot of increase in demand. And we’re just not seeing supply come online anywhere.

So I definitely think although we’re kind of seeing some consolidation and if we see Russian, Ukraine pensions kind of pull back a little bit or dissipate, then we could see a bigger pull back into say, the mid 80s. But I think we’re still headed for over 100 into the summer just because of literally supply demand fundamentals.

TN: Interesting. Okay. So while we’re on energy, we have a viewer question from Twitter from Clifford Topham. He says following BlackRock’s about turn on fossil fuels in response to Texas potential threat of removing BlackRock from managing state pensions. Is this the start of a change in attitude by Wall Street? So is it the beginning of the end of ESG?

TS: Well, I think Wall Street is about greed. Right? We all watch the movie. That’s where the money is. So what I think is going to happen is we’ll still see these smaller banks and the smaller insurance companies, etc. That we have seen this week kind of pull back and not get involved in the OMG industry. I still think that we’re going to see these major investment firms and these major banks still hang on to that, if not increase their exposure.

TN: Okay. Sam, are you with your clients on the ESG side? Is there any movement there?

SR: There’s not a lot of movement there in terms of real money. Right. So you can have a bunch of small insurance companies. You can have small pension funds. You can even have a few small colleges. In the grand scheme of things, who cares? You’re still getting all the votes going in the wrong direction for oil and gas companies. You still have Exxon being told that it needs to vest of oil and gas, which is nuts because it’s literally an oil company.

Now, to be honest, we’re not seeing a significant reversal of ESG. We’re seeing maybe call it a billion 3 billion that type of potential money going into the space. And that’s if you look at their portfolios and say do a 2% overweight to the SMP 500 and go 7.5%, that simply isn’t that much money.

TN: Okay, very good. Let’s move on to Volatility. Nick, you talked about Volatility last week, and I wanted to dig into that a little bit. We’ve seen Volatility. We’ve seen the VIX approach 30 this week. And so I’m curious, based on your hypothesis last week, do you see that sustaining? Do you see the VIX increasing and like over a time frame?

NG: I think the Volatility broadens out to other markets. For example, we’ve had VIX can be between 32 and 34. It’s known that people come in and suppress the VIX. The Fed have been active in sellers. That’s well known, and they cover it when it gets to the end. And in fact, in the zero rate world, it’s been in the Fed’s top Randy to suppress Volatility.

And thus, hence you have the Ford guidance with this diminishing Ford guidance. And Mesa mentioned it this week as well, that as they start to hike rates potentially, do QT tighten up everything? The use of Ford guidance has been diminished to it would be a hindrance. The whole point of tightening is not to give the full scope of what’s coming. But the important thing is for all subsidiary markets, Volatility in the treasury market has exploded. I remember everything is priced off of the risk free asset.

TN: Right.

NG: So you’ve seen the move index fly higher. And the reason why that’s so important is bid offer spreads on the treasury market are actually widened. So that means there’s a liquidity issue. And if you remember back in 2020, you had the repo crisis, which was a liquidity issue. If that continues, then the bit of a spread and thus liquidity in credit markets, which should be beginning to suffer and CDX rates were spiking higher stay that will suffer, that will then feed through to equity markets. You will have less liquidity, hence higher Volatility.

So it’s a very risky path and it will be a very volatile path from now on.

TN: Okay. And so when you say from now on, you mean over the next, say, through the end of the year, or is this something that happens, as we say, approach QT in second quarter.

NG: This should carry on happening.

TN: Okay.

NG: I mentioned to you earlier I still don’t trust this Fed. I think it could end up being stop start the economy at the beginning. I think this is going to carry on for quite a while.

TN: Okay. You started to interject, but did you want to add something on that?

SR: Yeah. No, I was going to take the other side of that. Saying that the Fed communicating less is, in my opinion, a Vic suppressor at this point, because if you don’t have Bullard coming out and saying stupid things that nobody should have ever taken seriously. You don’t inject half of the volatility that you currently have in the market right now. You don’t have the possibility of an intermediating hike. You don’t have the 50 basis points. You don’t have the QT coming potentially in March.

So in a way, I think taking away the forward guidance and beginning to actually have some sort of a coherent path with an economy that hasn’t actually broken yet. 30 next time seller. I saw that all day. And if something happens in Ukraine, sell it again and you get I think that’s probably the best risk adjusted return this year is selling Vixen spikes.

TN: Interesting. Very good. Okay, guys, what are we looking for the week ahead? Tracy, what’s on your mind for the week ahead?

TS: Well, again, I think that oil markets are probably going to move sideways until we get some sort of resolution. As far as the Ukraine Russia deal, I think the equity markets are still skittish about that.

Again, I think we’ll see a lot of volatility there. I think precious metals will continue to do well sideways to up, perhaps. Right. Because that market is kind of crazy, but it does well on uncertainty. And I think that if you’re looking at based on industrial metals, that will continue to see those rise because we’re having political problems, say, for instance, with copper in Chile and Peru because of the new leftist government there.

TN: How much of global supply is Chile and Peru?

TS: 40%.

TN: 40%. Okay. So that’s a little bit. Yeah, exactly. Okay. Very good. Sam, did you have something?

SR: Oh, no, I just was English.

TN: Nick, what are you looking for next week?

NG: A continuation of what we’ve had this week. And I think at some point it’s going to be up and down on Ukraine. Who knows, right. I do think the rhetoric from the Fed will continue. I think what’s interesting to me is I take the most retail of retail ETS to see whether retailers sold anything on the way down. And that would be Ark haven’t sold anything. There is a whole lot of pain out there.

And I just think we’re volatile with the downside bias. Yes. You’re going to have a spike up on good news. We had that this morning and it all gave back. Yeah. It didn’t keep it. So I think there’s something more than just Ukraine behind everything. And I think this volatility and my point on I don’t disagree with Sam on the bigs, but I think what’s going on in the fixed income markets will come as a surprise and will flow through and just make trading difficult.

TN: Okay. Let me ask you also, we’ll take this from you and then we’ll move it to Sam as well. When we see the ten year rise above two again.

NG: If things calm down, it goes straight back above two. Yeah, absolutely.

TN: Okay. Sam, what do you think about rates about the ten year?

SR: So what I would say is it would completely flip on my comment that it’s all curve flatteners from last week and say, hey, it’s curve steepener now. Any good news on Ukraine? Anything? You saw it when a few tanks moved or supposedly moved get a big move in oil. You got a big move in the curve. You got the FOMC minutes, et cetera, et cetera. Everything from here in terms of a dissipation looks like Kurt Stephen to me with two stuck somewhere between 140 and 150.

TN: Okay.

SR: And twos heading north or in towns heading north. So really like the steeper now?

TN: Okay. So it sounds like you all are saying we’re kind of in a wait and see for most markets. Is that fair to say.

NG: Wait and watch? Wait and watch?

TN: Yes, wait and watch. Okay, great. No big decisions over the next week, is that what you’re saying?

NG: Keep your risk tight and small.

TS: I mean, everybody’s going to be watching Ukraine and Russia and everybody’s going to be watching the March meeting for the fed. Until then, I think you could see a lot of volatility in the markets, whether it be in equities us Treasuries or commodity markets.

TN: Very good, guys. I always appreciate this. Thanks so much for your time. Have a great weekend. Thanks.

Categories
News Articles Visual (Videos)

CNA: Expect rates to be near 1% by the end of 2022

The full episode was posted at https://www.channelnewsasia.com. It may be removed after a few weeks. This video segment is owned by CNA. 

Show Notes

CNA: Welcome back. Strong consumer spending and business activity growth drove a 40% profit search for Southeast Asia’s third largest lender, UOB. In 2021. The bank reported a net profit of four. 7 billion single dollars for 2021. That’s slightly above endless estimates. Uob says economic recoveries in Singapore and regional neighbors helped bring in more income for the bank, filling its profit rise. Net interest income rose 6% from one year ago as loans expand 10%. Net interest margin remained stable at 156 percent, while the Dow snapped a three day losing streak on Wall Street. As an easing of geopolitical tensions overshadowed hot U. S. Inflation data. All three majors got back to winning ways after Russia confirmed a partial withdrawal of troops from the Ukraine border. The news helped Starks a with the Dow closing up by one 2%. A big Bough in Texas saw the SP 500 climbing one 6% and the Nasdaq jumped two 5%, while the Deescalating tensions also helped push oil lower. In addition to geopolitical news, investors got another look at the inflation picture. On Tuesday, the producer price index jumped 9.7%. On year in January, it was up 1% for the month. The index tracks the prices businesses receive for their goods and services.

And this latest number adds two calls for the Fed to act at its next meeting. To help us understand more about the future market trend, we’re joined by Tony Nash, founder and CEO with complete intelligence, speaking to us from Houston, Texas. Very good afternoon to you, Tony. So traditionally, investors like Fabri because it’s a good month for risk taking. But looking at this February, we are coping with situations like tensions between Ukraine and Russia, as well as Fed rate hikes possible. So maybe investors this time around should remain cautious. What’s your take on this?

TN: I think you’re right. I think we’re in an environment right now where we are seeing a lot of volatility. We saw equity markets fall earlier this week. We’re seeing them rise today. And we expect quite a lot of volatility as the Fed and as central banks get their strategies and their new policies together and as some of these geopolitical tensions come and go.

CNA: And we’re also looking at the PPI number released overnight, which puts Fed policy in the spotlight again. But historically, the Fed hasn’t been able to push down inflation without a recession. And this time around, we are talking about economic recovery that’s comparatively fragile. So how worried are you about that the Feds unleash aggressive rate hikes could again bring in another recession?

TN: The Fed always has policy missteps. They’re a blunt tool. And so the Fed is in inflation fighting mode right now. They’re getting a lot of political pressure to be in inflation fighting mode. The data is telling them they need to be inflation fighting mode and selling to well, in March, they’re stopping buying assets for their balance sheet, but they’re also expected to raise interest rates. And then later in Q two start to tighten their balance sheet, which means they’re selling off the assets that they’ve bought over the last two years and they’ll be taking currency out of circulation. So we’ll have slightly tighter currency conditions and we’ll have slightly higher interest rates.

CNA: So are you worried about the possible economic recession in the US?

TN: Yes, I think everyone sees it as a possibility. I think part of the problem is we don’t have the fiscal spending out of the US government that we had in 2021 and 2020. And so the big missing piece in the US economy right now is that fiscal spending that we’ve had for the past two years. So the Biden administration hasn’t really been able to get it together to have that fiscal piece because what we’re looking for is a bridge, really from the government spending led economy that we had in 2021 to more of a private sector led economy in 22. There was a hope that there would be some government spending to bridge that, and we’re just not seeing it. So the lack of government spending, I think more so even than.

TN: Say, interest rate hikes will have a negative impact on the economy.

CNA: And we’ve seen that market have basically priced in the fed rate hikes. But how do you expect that possible rate hike to affect the value of the currency? The dollar over there?

TN: Sure. We have a real risk of the dollar appreciating sharply. Depending on how aggressive the fed becomes, I think there will be moderate upward pressure on the dollar as the fed reigns in inflation. So again, they’ll shrink the amount of currency available. They’ll raise interest rates. Both of these actions typically put upward pressure on dollar values and, of course, that would hurt some of the countries in Southeast Asia when people sell or have due debt in US dollars. But it could help them if they’re selling assets in US dollars like, Malaysia, say, exporting oil and gas.

CNA: Tony, nice talking to you as always, Tony Nash, founder and CEO, with infinite intelligence.

Categories
Podcasts

US Complete Lockdowns Unlikely

Corporate earnings are beating the Wall Street estimates — are these even accurate? For the exporting countries in Asia — will they be badly hit with further lockdowns? And why is WTI crude oil dropped all of a sudden? All these and more in this quick podcast interview with Tony Nash at the BFM 89.9 The Morning Run.

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/us-complete-lockdowns-unlikely on August 5, 2021.

 

❗️ Check out more of our insights in featured in the CI Newsletter and QuickHit interviews with experts.

❗️ Discover how Complete Intelligence can help your company be more profitable with AI and ML technologies. Book a demo here.

 

Show Notes

 

SM: BFM 89.9. Good morning. You are listening to the Morning Run. I’m Shazana Mokhtar in studio today with Wong Shou Ning and Philip See. First, though, as always, we recap how global markets ended the trading day.

 

PS: Yes, the U.S. was relatively mixed. The Dow is down 0.9%. S&P 500 also -0.5%. Nasdaq was up 0.1%, crossing over to the Pacific and Asia. Also a mixed day. The Nikkei was down 1.2%. Shanghai Composite and Hang Seng were both up 0.9%, Singapore up 1.1%. And actually, not surprisingly, FBN, Kilcher was down 1.6%.

 

SM: And for some insights into what’s moving markets, we have on the line Tony Nash, CEO of Complete Intelligence. Good morning, Tony. Always good to have you. So looking at corporate second quarter earnings, they’ve been beating Wall Street estimates, yet a prevailing bearishness seems to be creeping into U.S. markets. Is this an accurate reading driven by the rise of Covid-19 cases from the Delta variant?

 

TN: Yeah, earnings are up about 90% year on year, and a lot of that really has to do with companies cutting back staff and trimming expenses. This is a really nice, obviously not unexpected, but a really nice pop. But the cutbacks have come to a limit if we’re straddling a come back. Part of that is revenues are up 22% on quarter, which is great. But given the cutbacks, it looks extraordinarily good. So these things have a way of winding down. There’s only so much you can only get this good for so long. So we do expect this to to erode a little bit going into next quarter.

 

WSN: But does this mean that markets will find it hard to go to the next leg up in?

 

TN: It depends. It depends on company performance, but it also depends on things like central bank activity and fiscal spending. So if we look at Covid, it depends on which way it’s going. And if Delta variant gets worse and the fatality rate gets worse, which isn’t here in Texas, the fatality rate per case is half of what it was back in February. So just six months ago, the fatality rate here was twice per case of Covid.

 

So we’re hearing a lot about case counts. But the reality is the fatalities are declining pretty rapidly. So here we see that is a good thing. And and so we’re hopeful that things will you know, we’ll continue to move back to a normal situation. But there’s a lot of talk about, you know, closing things down. New York just put coded passports in for going to restaurants and going out in public, the sort of thing.

 

What that does is that really it really hurts small local businesses. It hurts chains for, say, restaurants and shopping. It helps companies like Amazon that do a lot of local deliveries. So so if New York is going to lock down, it helps to work from home type of company try it. But it seems to me in the US it’s going to be really hard to close the US down again because there’s a lot of push back in the US to closing down in some places, not so much New York, California, those those places, but other places. If there was an attempt to lock down again here in Texas, people would be pretty resistant.

 

PS: And you made a point on central bank activity. Fed Vice Chairman Richard Clarida confirmed that they are on track to raise rates in twenty twenty three, but jobs data is soft. So how should we make of all this?

 

TN: Yeah, I don’t see that happening. Look, you know, people talk about rates a lot, but the Fed has so many tools. I would expect the Fed to commence some sort of QE plan in the not too distant future before I would expect rates talk. I think we’re closer to QE than we are to rates much closer to QE than we are at a rate. So I don’t see rates changing certainly in obviously in twenty one. I don’t see them changing in twenty two. If it’s twenty three, maybe it’s the back half, but I just don’t see that happening simply because we’ve got to stop the flow of finance ministry and central bank activity going into economies globally first before we start to impose higher rates on borrowers. So we just need to get to a zero state or a semi normal state before we start imposing higher rates on borrowers.

 

SM: OK, and turning our attention closer to home, Tony. An economic upswing in Southeast Asia this year looks increasingly uncertain. And given that ASEAN is predominantly export dependent, how badly hit do you think countries in this region are going to be?

 

TN: Yeah, I think it’s hard. For those countries that have the benefit of, say, natural resources exports like Malaysia with palm oil and crude oil and other things, I think that helps. However, manufactured goods are difficult, partly on supply chain issues, partly on Covid, you know, restrictions and other things. So international transport is still in a very difficult situation. So I think it’s tough for Southeast Asia. I think there’s a big move in Europe and North America to have more manufacturing done nearby in regions.

 

So I think this, over a period that’s been protracted 18 months or longer. I think the more that happens, the more we see unwinding of global supply chains and the more we see the unwinding of Asia as the centralized manufacturing hub globally. I think we’ve seen more regional manufacturing. I don’t think that necessarily means that the manufacturing in China or other places are necessarily in danger. Unfortunately, a place that I think places that I think are more in danger of places like Malaysia, Thailand, the middle income, middle tier type of manufacturing countries. So the automation, competitiveness, these sorts of things are really much more important in places like Malaysia and Thailand.

 

WSN: And Tony, I want to switch to oil because when I look at the Bloomberg at the moment, WTI is showing at sixty eight U.S. dollars a barrel for delivery in September. What do you make of this sudden drop in prices? Is it due to demand decline?

 

TN: It’s on Covid fears. News all over the here in the U.S. It’s a lot of Covid fear mongering and you know, a lot of that. The media is based in New York and D.C. And so there’s a lot of chatter on the government side. And in New York, the New York media is trying to get the the focus away from Andrew Cuomo, the governor there, and really trying to focus on Covid and other things. So markets are reacting.

 

Business doesn’t want things closed down. Again, people in business don’t want to close down again. So I think, you know, you’re going to see a real push pull in markets over the next couple of weeks as that debate happens about two places closed down or not. And you’ll see some volatility in things like commodities and in other markets as that very active discussion continues.

 

SM: All right, Tony, thanks as always for your insights. That was Tony Nash, CEO of Complete Intelligence, talking to us about the situation of the economy in the US. And, you know, that push and pull between closing down, how do we deal with with the covid, but at the same time, you know, make sure the economy doesn’t suffer too much.

 

PS: You made a very interesting point that with closing down, who is affected the most. Right, with respect to businesses. He did say smaller businesses are more susceptible as result of a closure locked out. But the same is exactly the same thing you’re going to see across the board.

 

WSN: Yeah, yeah. I think he also brought up an interesting point about the fact that, yes, there is this decentralization of manufacturing hubs. Right. Because I think a lot of businesses are concerned that with covid-19 and they have really been proven that supply chains can be very easily disrupted. But ironically, Malaysia may not be a beneficiary. It might move to other countries. And it’s a question of whether we move up the value chain to provide that, you know, that that automation that we need do.

 

The things that we talk about are 4.0. I’ll be ready for it. Do we have to staff for it? Will they go to other countries? And he hinted that he might. So I’m just curious, in the longer term, what is our government’s plans, especially now 12 million, your plan confirmed to be in September and budget 2022 in October?

 

SM: That’s right. And we’re going to get a perspective on this later on in the show at seven forty five when we speak to the president of the Malaysian Semiconductor Industry Association. So stay tuned for that BFM eighty nine point nine.

 

Categories
Podcasts

Big US Bank Earnings And The Future Of Global Automakers

The IMF has upgraded its GDP forecasts for developed economies but what is the outlook like for developing economies in South-East Asia? The Morning Run asks Tony Nash, CEO of Complete Intelligence. They also get into insights from the earnings out of JP Morgan and Goldman Sachs, as well as how traditional automakers will have to adapt in light of the EV boom.

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/big-us-bank-earnings-and-the-future-of-global-automakers on April 15, 2021.

 

💁‍♀️ Check out more of our insights in featured in the CI Newsletter and QuickHit interviews with experts.

🎯 Discover how Complete Intelligence can help your company be more profitable with AI and ML technologies. Book a demo here.

 

 

Show Notes

 

LM: The IMF has upgraded its GDP forecasts for developed economies, but what is the outlook like for developing economies in South East Asia?

 

TN: It’s actually not bad to look at this IMF report. We had such a pullback in economies in 2020 that we really have to look at the growth rates in 2019, 2020, and 2021. To understand it in context, Southeast Asia looks to be doing pretty well when we average those three years out. There’s growth in just about every country except Thailand, now with a slight pullback over that time. And so what that means is Thailand will not necessarily back up to the 2019 levels unfortunately, but Malaysia is 1.7%. In Asia, 2.4%. Singapore, 0.38%. So Southeast Asia is growing. Europe, on the other hand, there is only one country that shows growth over that period, which is the Netherlands within the Eurozone. So Europe has a bit of a problem. The US continues to grow, though around 1%.

 

NL: Meanwhile, is the sharp rise in March, U.S. CPI prices compared to February a good sign or something to be concerned about?

 

TN: We didn’t see long term inflation effects and a lot of kind of buzz about long term inflation affects or medium term inflation affects in the US. But our view is that this is two factors. One is the base effect, meaning we saw so much disinflation or deflation in 2020 that we’re seeing a base effect on that. The other one is supply constraint. So we’re seeing hold back in supply chains or we’re seeing supply chains catch up from closure.

 

There is a constrained supply which is driving up prices as supply chains continue to equalize and balance out. We should see those prices return to normal. If we go back to the IMF forecast, we don’t necessarily see rousing growth for 2021 compared to, say, 2019. So we have the manufacturing capacity in place. So I don’t necessarily see demand outstripping supply to create the inflation that many people are talking about.

 

NL: When do you expect the situation will normalize?

 

TN: It really all depends on when countries open up and and that sort of thing. I would do three of twenty one is when we start to see things more normal, I think it’ll work out in between now and then. Of course, currency dynamics have a lot to do with that, but we’ll have to see what happens with the dollar with CNY and the euro to really understand how that will shake out. But we think we’ll see normalization in Q3.

 

RK: The big Wall Street banks have kicked off earnings season with numbers from JP Morgan, Goldman Sachs and Wells Fargo. They beat estimates, but are these numbers sustainable or just a one off blip following a what was really a tough year?

 

TN: They both did really well in terms of return on equity. And that’s really one of the major requirements for banks. The real question is around loan. So we saw a spike in loans in the middle of 2020 in the US, largely on the back of small business loans and very low interest rates and government programs to push loans out. Loans are down in Q1 of ’21. There is an expectation that loans will perk up again in the second half of ’21. I’m not quite convinced we’ll see the loan growth that was talked about today with JP Morgan’s call. I think we’ll see loan growth in the second half of ’21, but I’m not necessarily sure that we’ll see the spike that we discussed on the call.

 

LM: So Tony, Legacy Cockburn’s and IT companies are both rushing into the electrical electric vehicle space out of these two, who’s likely to come out in front?

 

TN: I think it’s a combination. Car brands make really good hardware, but they’re really not great software makers. So I think there’s going to be a combination of the car brands relying on battery makers and relying on software to make great electric vehicles. There are a lot fewer parts in EVs. And so these supply chains that the car manufacturers had to have for internal combustion engines change pretty dramatically for EVs. They’re going to have to rely on battery makers and software makers.

 

I think the real question for the auto manufacturers is what is that business model going forward? I think they may learn from software makers with the recurring revenue model. So we may take a car and pay a monthly charge for that car, almost like combining finance and the car itself. So carmakers have a recurring revenue model with regular upgrades similar to the way maybe some mobile phone carriers operate, those sorts of things. I think it’s a stretch to have the one time payment. I think carmakers see that finance revenue go to other people and they may want to do that themselves with EV.

 

RK: Out of curiosity, do you have any thoughts on what will define whether a legacy car brand is going to succeed in the new car world? Because a lot of them have been hesitant to move. They’re going to have to make partnerships with the battery mate because they’re going to have to make partnerships with software makers is going to be the two defining parts who they’re putting on the battery and the software name.

 

TN: Yeah, I think it depends on, you know, the first mover is not necessarily the winner. So I think Tesla ultimately, they’re a great company. They make fine cars like every car company. They have problems. But I think they’re fine. It doesn’t necessarily mean they’re going to be the winner. I think with Volkswagen announcing, you know, big moves in the market a couple of weeks ago, say if Toyota really I mean, of course, they’re going after it already. But if there are real moves in that direction, I think the very, very large scale carmakers will ultimately win.

 

A lot of this has to do with regulatory and subsidy regimes within the consumption countries. So it is more expensive to buy an electric car. There is not the infrastructure necessarily to have electric cars to drive long distances. So the subsidies that national governments put out to push that market forward are going to have a major impact on the adoption of those cars.

 

The real danger, I think, is it’s going to take a long time to rollout that infrastructure and other things. So the real danger for the guys who invest in EVs in a big way is a different type of technological change that could come around. I don’t know what that could be. It could be a more efficient internal combustion engine. It could be, you know, I don’t know, a different type of fuel or something that’s a lot cheaper and a lot easier to use.

 

So there are a lot of question marks around the rise of EVs. I don’t necessarily think that it’s guaranteed that EVs will take over and the big car companies are going to go on a percent to electric vehicles.

 

RK: The large scale makers like Volkswagen, Toyota, they’ve got they’ve got essentially a conglomerate of other brands within them. Do you expect to see more consolidation, especially as this? Because the car industry hasn’t been doing well that great over the last few years and we’ve seen more M&A. We should we expect more consolidation, especially after last year?

 

TN: I don’t know how much more there is to consolidate. I think it may get specialized boutique. When you have technology changes in an industry, you always have specialized boutique companies that come around. We saw this in mobile phones, say, 10 or 15 years ago, and those ended up being purchased. So I think we’ll have an era where we’ll have even more TV companies, small ones that end up being bought by the larger guys. So, you know, a technological change really pulls a lot of innovation. Big companies are really not good at innovation, so they typically have to acquire it. Will it Tesla be acquired? Probably not, at least not at this valuation. But other small companies, early stages could potentially if they have very good tech. So I think that’s the way they leapfrog. I don’t think it’s the massive processes that they have internally, like a Volkswagen today. I don’t think that’s the way they leapfrog.

 

LM: Thanks so much for joining us this morning. Tony, that was Tony Nash, CEO of Complete Intelligence, giving us some insight into what’s happening in global markets.

 

RK: So we are talking about cars very quickly. I see this headline here that Jilly’s Lotus cars, miles, raising four billion ringgit.

 

And they’re only doing this to help the iconic British sports and racing automobile brand to expand into the IV market in China, according to people familiar with the matter. And this is a story from Bloomberg. So Geely is working with advisers to slander potential investors interested in funding the round. And that could see that would value good value lotus operations at about five billion U.S. dollars. This is going to be interesting because this is, of course, was formerly part of the Proton Group, which was then bought by Geely.

 

LM: And so so we’re going to be heading into some messages now and then. Up next, taking a look at Mithras financing with financial columnist Pankaj Kumar. Stay tuned. BFM eighty nine point nine.

 

Categories
News Articles

Time To Rotate

Tony Nash joins BFM 89.9 The Business Station for another look at the global markets particularly discussing the “Japanese equity market”. Is it the time to rotate into value or maybe it is a sign that the broader economy is recovering?

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/time-to-rotate on August 26, 2020.


BFM Description

 

With technology stocks hitting all time highs, there has been some inflow into the finance and utilities sectors. We ask Tony Nash, CEO of Complete Intelligence if it is time to rotate into these names. We also ask his views on the Japanese equity market and if there is still money to be made with the change in leadership.

 

Produced by: Mike Gong

 

Presented by: Khoo Hsu Chuang, Wong Shou Ning

 

Show Notes

 

WSN: So far, deeper dive in global markets today. Joining us is Tony Nash, CEO of Complete Intelligence. Good morning, Tony. Now, last night, U.S. tech stocks will slump relatively while laggards like finance and utilities saw some inflows. So do you think this is the time to rotate into value and maybe a sign that the broader economy is recovering?

 

TN: I think it’s certainly a time to to that that that rotation is starting. I don’t necessarily think it’s in full swing yet, but but we’ve received signals for the past week or so that that rotation would start sort of seeing some of the techs off.

 

Today is not really all that surprising, given especially some of the Fed and Treasury statements over the past couple of weeks.

 

KHC: Yeah. So in terms of cyclical stocks, Tony, what is your point of view in terms of which sectors might benefit?

 

TN: Well, I think, you know, we’ve seen tech with companies like Nvidia, Tesla, and these guys have just had amazing gains over the past, say, four months. I think, you know, the rotation into some of the finance stocks, into some other more mainstream, broader market equities is likely. I think the indices are assuming that tech stays at elevated values. That rotation will only help the indices if tech comes off. Given the concentration of waiting within those stocks, it could really hurt some of the overall indices.

 

WSN: And, Tony, let’s focus on one of these, you know, super winners in the last few months. And it’s Tesla, right? They have a decision to sell five billion worth of shares. Is that smart or overly ambitious? Move now. And what more what kind of growth can we expect from this company?

 

TN: Well, the I think the the growth in the stock price is very different from the growth of the company, so Tesla’s trading at a PE ratio of almost 1200.

 

OK, the stock’s more than doubled since March. So, you know, the company itself isn’t doubling. You know, I think it has. I think what the management is doing is making a very smart decision to sell equity while they know the price is very high. So from a management perspective, I think that was a very smart decision. In terms of a buyers perspective, I’m not so sure it’s possible that Tesla stays at these elevated level. People have been trying to short Tesla for years and it just hasn’t worked.

 

So it’s possible there’s growth there and it’s possible they stay at these elevated levels.

 

WSN: So, Tony, are you a big fan of Tesla? This level…

 

TN: It’s hard not to be whether I’m a buyer, personally or not, I would hesitate here. But, gosh, you know, I think there are other places to look that are better value.

 

But it really, you know, part of it really all depends where the stimulus is going. So since the Treasury and Fed are intervening in markets, if they’re targeting specific equities or specific sectors, then you kind of have to follow that money.

 

And so it’s it all depends on how much further these things are going to run and where that stimulus is targeted.

 

KHC: OK, based on PMI data, most of Asia remains contractionary. But for China, of course. You know, Tony, in your opinion, why is recovery not yet forthcoming? And is there a main catalyst needed for manufacturing to take off?

 

TN: Yeah, I mean, look, in terms of manufacturing PMI, as you have Indonesia, Thailand, South Korea, Taiwan, you know, they’re all growing, which is great. Myanmar is actually growing faster than China.

 

But what we don’t have really is the demand pull. And that’s been a real problem. And, you know, we’ve been talking about that since February and we’ve been really worried about deflation. And, you know, what we see even in Southeast Asia is government intervention in markets is really what, propping up a lot of the activity. And I think, you know, the big question I have is, will we see steam come out of recovery in Asia in the same way we’ve started to see steam come out of recovery in the U.S.?

 

I think the answer is unfortunately, probably yes. And I think until the demand from both consumers and companies comes back and the fear of covid wanes, I think we’ve got some some volatility ahead.

 

We’re expecting some real trouble in September. I think it’s great that markets are doing well today, but we’re starting to see the the momentum really slow this month.

And without additional help from the Fed or PEOC or other folks, it really slows down. The problem is the efficacy of that support really deteriorates the more you add to the system.

 

WSN: And Tony, look at Japan, right?

 

I mean, are trading the equities. They are trading at a steep discount to their historical premiums. Do you see any value in yen based assets? After all, Warren Buffett himself just dipped his toes into it by six billion dollars worth of trading companies did. What do you think?

 

TN: Well, that’s the answer. I mean, it’s hard to it’s hard to bet against Buffett. He’s obviously seeing real value there. And I think the Japanese trading companies are really, really interesting because they’re you know, they’re a very good play right now. So is there a value? Sure. I think there’s value there. I think with Japan, a lot of the story is around productivity and automation. If if Japan can continue to raise its productivity through automation, I think it will be a very good play.

 

If that productivity and if the level of automation slows down, then it becomes questionable because everyone knows about the demographic story in Japan, but the economy continues to grow, which is really amazing.

 

WSN: So it seems like you’re quite a believer in that this can overcome some of the structural issues. But what about the fact that Abe has resigned for health reasons? Does it change at all the economic and monetary policies in Japan that might change your decision?

 

TN: Yeah, I think when someone like Abe steps down,  there’s always momentum. So it last for several months. The real question is, how long should the next leadership last? And is there enough structural stability to continue the momentum in Japan, meaning it’s not growing leaps and bounds, but it’s stable growth and it’s healthy growth. So I like Japan a lot. We have had reform under Abe. We have had structural reform under Abe. I think it’s much more healthy today than it was in 2011 or 2010. A lot’s been done.

 

Japan has the capability to continue to improve, but it all really depends. There are regional dynamics and there are domestic dynamics. But again, I think if demand regionally and globally doesn’t return, which is likely COVID induced, then I think Japan, like everywhere else, will have issues.

 

WSN: All right. Thank you for your time. That was Tony Nash of Complete Intelligence, speaking to us from Houston, Texas.