00:00We may not get the details in terms of what might be agreed upon or if anything is really agreed
00:04upon between the U.S. and China on topics like AI, like trade.
00:08Do you think markets will be happy with just an overall sense of stability in that relationship?
00:16Thank you. And thank you for having me at the Bank of America conference for the second year in Hong
00:21Kong.
00:21This is our largest regional conference. Absolutely. I think markets would view any agreement or move towards a better understanding
00:31between U.S. and China positively.
00:33Our view on the upcoming summit is that we get a one-year extension on the tariffs that expire in
00:41November.
00:41We also think there's a possibility of some tariff reductions around agriculture or announcements on aerospace.
00:48And look, there's breaking news. I was listening to your discussions before and we'll have to take this into account
00:54and we'll see what happens over the next few days.
00:59I'd ask about what's top of mind for you and for markets at the moment, but there's just a lot
01:04to be juggling, right?
01:05We're getting some very quick kind of repricing in terms of what central banks are expected to do, not least
01:12of which is just sort of the latest repricing when it comes to the RBA here in Australia.
01:16But there's so much uncertainty, be it related to trade or energy or technology.
01:21How do you position for opportunities or risks in this environment?
01:29So I'll go back to our fund manager survey. We completed the survey from our clients in September recently.
01:35And what was top of mind has been fairly consistent as the AI trade, and they're trying to figure out
01:41what's next.
01:43Four out of five of the respondents did say that they want to see more monetization before they allocate more
01:49capital to the AI trade.
01:51The two markets in our region which were top of mind were Japan and Taiwan.
01:57And again, markets have a lot to absorb, but also the earnings picture is very, very robust.
02:05And so we'll see where the rates go. It is going to be a definite topic for discussion over the
02:09next few days.
02:10The Fed, BOJ and the RBA.
02:15What's interesting, reading through your notes, is the idea that the notion that commercialization, commercial viability could come sooner when
02:24it comes to the Chinese AI ecosystem.
02:26Can you talk to us a little bit more about that?
02:32We just published a note on the Chinese ecosystem for AI, and we've got a smile curve on it.
02:38And one side of the smile curve are the semiconductors, the hardware, the infrastructure, the memory.
02:43And on the other side of the smile curve, the areas likely to benefit the most are going to be
02:49the large enterprises and the cloud systems as they roll these services out to millions of users and enterprise clients.
02:57We feel very confident that the Chinese AI build out is on track and is actually very competitive with what
03:08is happening around the world.
03:12What sort of opportunities would you potentially be looking at?
03:16It really is sort of mirrored across the supply chain, isn't it?
03:24Sorry, my apologies.
03:25I couldn't hear you well because of the noise over here.
03:29My question was sort of pertaining to the China AI ecosystem and some of the opportunities.
03:34But really, it kind of goes across the broader region as well.
03:39I'm wondering which part of the supply chain kind of looks interesting in terms of the part of the cycle
03:44that we're in now, given so many of the concerns over financing, over the sheer amount of investing and spending
03:50that's gone into certain parts of this world.
03:56Well, the first thing I'd highlight is since ChatGPT came along, interest rates are much higher and the CapEx has
04:03been ongoing and hasn't slowed down.
04:05So there are definite concerns about the interest rate environment, and we will discuss that.
04:10And cost of capital is a fundamental issue that investors have to take into account.
04:15But you're absolutely right.
04:16Supply chains, something that stands out is Korea.
04:19So if you look at August this year, Korea's exports have crossed $700 billion.
04:24They're on track to cross a trillion dollars this year.
04:26And we put out a report, and the estimates are that memory itself will have a global market of about
04:33$2 trillion by 2030.
04:36So, yes, supply chains benefit Korea, Taiwan, Japan, China.
04:40But in Korea specifically, it actually goes much further, whether it's defense or autos or industrials or shipbuilding.
04:48Korea is really benefiting from tailwinds integrating into the global supply chains.
04:55How much impact do you see if there is no meaningful resolution to the energy crisis?
05:02Because you're seeing here in Australia expectations for the RBA, how soon we're going to see another cut, not to
05:09mention how deep this cycle might actually end up being revised as a result of $100 plus a barrel of
05:15oil.
05:17There's that side, and then also I'm wondering if you're looking at the implications of the AI trade and how
05:22expensive financing might get.
05:24At what point does that become a flashpoint?
05:30So, in the RBA, they are dealing with an inflation impulse in their economy, and they're very focused on it
05:36right now.
05:37In fact, just to stay on Australia for a second, our economists and our macro team in Australia just put
05:43out a report sort of thinking about the AI build in data centers
05:47and highlighted that we could have a repeat potentially of what we saw in the early 2000s of mining, and
05:53the numbers are pretty staggering, roughly 6% of GDP and potentially $180 billion Aussie dollars of investments.
06:00And this comes at a time where there's inflation impulse in the system, so the view is inflation will be
06:06a cause of concern in the near term.
06:08And over time, because of productivity and capital stock, maybe we get disinflation.
06:13On the energy, a really important point, if we get a disorderly news flow over the next few months, if
06:22we don't get resolution, parts of Asia are very dependent upon energy from the Middle East.
06:27And this could be a concern and a headwind going forward, but let's hope that there's resolution to this supply
06:34of energy from the Middle East.
06:37Chris, I wanted to get your views on Japan as well.
06:40Well, there was a lot of expectation, and the worry was that perhaps the BOJ wasn't going to be able
06:45to out-hawk an already very hawkish market expectations.
06:48And that was essentially what transpired, right?
06:52What do you make of the dissenting voices and how that perhaps complicates the path forward for Japanese assets?
07:01Look, our fund manager survey is consistent with what we believe.
07:04The BOJ path of normalization is the biggest focus for equity investors in Japan.
07:09And we had a conference in Japan two weeks ago.
07:11We discussed this a lot.
07:13Our call is that there are three more rate hikes in the system and that we think BOJ goes up
07:18by next summer to 2%, so one done and three more to go.
07:23And, yeah, that's our call for the BOJ at the point.
07:28Yeah.
07:29The other thing I would add just on Japan is we've – sorry, go ahead.
07:36No, Chris, continue.
07:37Finish your thoughts, please.
07:40Yeah.
07:40Yeah.
07:41Yeah.
07:41Yeah.
07:42The other thing on Japan is we actually think that over the next few months the yen will slightly strengthen
07:48and go to 149 because there is very significant domestic demand for Japanese assets.
07:57That's interesting because I wanted to ask you about the flip side of that.
08:00There's obviously a bit less pressure when it comes to the dollar debasement trade now.
08:04Do you think the Fed last week, some of the messaging, the pushback on the credibility concerns for WASH Fed,
08:11has that taken away some of the downside risks for the greenback?
08:17So before we had the recent Fed meeting, we had three rate hike calls for this year, so we feel
08:23very comfortable with that call.
08:25Chair WASH was very hawkish in his comments.
08:27There is concern around sticky inflation.
08:29And I suspect that based on the comments and based on the Fed committee, the issues around sort of the
08:38debasement of the weakening of the dollar relative to the other developed economies is off the table now.
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