Is an Emergency Federal Reserve Rate Cut Needed?

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Bloomberg Aug 6 00:34 · 16.7k Views

Zhikai Chen, head of Asian and global emerging-market equities at BNP Paribas Asset Management, talks about the route in markets in the region and around the globe, his views on technology stocks, and Federal Reserve policy. He speaks on "Bloomberg: The China Show."

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Transcript

  • 00:00 We are still seeing a bit
  • 00:01 of those CGBS on offer here today after signs of maybe some intervention, Maybe we'll see.
  • 00:07 Let's bring in Jakai Chen, head of Asian and global EM equities at BMP Paribas Asset Management.
  • 00:12 We're still licking our wounds really from the last two sessions right now.
  • 00:15 Jakai,
  • 00:16 how are you assessing all this here right now?
  • 00:18 You know, is it overdone
  • 00:20 and
  • 00:20 is this really time to be defying?
  • 00:25 As what is overdone, I think that's a trillion dollar question that everyone is asking right now.
  • 00:29 I think we.
  • 00:30 I also saw very sharp moves yesterday
  • 00:32 that by
  • 00:33 in developed Asia,
  • 00:34 if you will, starting from Japan into Taiwan and Korea,
  • 00:38 We saw several markets trip second acres at
  • 00:41 that particular point
  • 00:43 in time.
  • 00:44 And I think,
  • 00:45 I don't think there's a single trigger in my opinion.
  • 00:48 I think it's a combination of say,
  • 00:50 very strong positioning in popular trades that we've seen in Asia over the last,
  • 00:56 say, six months to even a year
  • 00:58 and obviously a very
  • 01:00 favorable carry trade that was forced to unwind in very rapid succession.
  • 01:05 That probably triggered a lot of the selling.
  • 01:08 If you look at some of the
  • 01:10 mega caps within Asia Extra Pan as well,
  • 01:13 BTSMCO, Samsung Electronics,
  • 01:15 you clearly saw that
  • 01:17 and there was very sharp movements downwards
  • 01:20 on very, very big volumes.
  • 01:21 That also suggests that potentially
  • 01:24 yesterday was a day that people saw what they could
  • 01:27 rather than what they want.
  • 01:29 So it's good to see that today we have a rebound in the markets and hopefully this breaks the fever.
  • 01:34 But I think we're still in fairly uncertain terms at this point in time given that
  • 01:38 in some of the regional markets
  • 01:41 we're actually still doing quite well on a year to date basis and investors are sitting on profits might be taken to take some off.
  • 01:50 We were just speaking with Gina Martin Adams from our Bloomberg Intelligence team and and her view at least for
  • 01:55 US Big tech is that there's still
  • 01:57 money that needs to come out of these and they're still looking too pricey, those names.
  • 02:01 You've been very positive on the IT hardware sector in Asia in particular.
  • 02:05 Are you sticking with that call?
  • 02:08 Yeah, we're still sticking with that call.
  • 02:10 And I also heard that
  • 02:12 conversation you had with Gina.
  • 02:13 I think one of the things that she pointed out that was quite interesting is on margins, right?
  • 02:18 And if you look at the
  • 02:20 current quarter earnings results,
  • 02:22 I will say the earnings on the fundamental wise and casual wise looks good.
  • 02:26 In my expectation,
  • 02:28 Guidance generally speaking were better than expected.
  • 02:31 I think for a lot of hardware tech,
  • 02:33 one of the key anchoring reason for us to be positive
  • 02:36 is that
  • 02:38 for Asia, we are the supply chain for a lot of this
  • 02:41 AI
  • 02:42 requirements, if you will.
  • 02:44 And from that participant
  • 02:47 perspective, the
  • 02:48 outlook on the revenue side still looks pretty good
  • 02:51 because you still see a lot of these bigger hyperscalers committing, even escalating their CapEx increases into this particular front.
  • 03:00 So that gives us a pretty good road map in terms of the order flows that's coming for hardware tech, at least in Asia.
  • 03:09 A lot of it has to do with the Fed discussion too.
  • 03:11 I'm just wondering, yeah, earnings are certainly one thing that is disappointing the AI side shakai.
  • 03:14 But
  • 03:15 there's now calls of of maybe we need some emergency rate cuts from the Fed.
  • 03:19 At what point should we start to worry that this creates that sort of negative feedback loop, right?
  • 03:23 If if we're going to see continued market sentiment that is weak, is that going to feed into the to the local economy and force the Fed to actually act more aggressively?
  • 03:34 Fairpoint.
  • 03:34 I think there's always just concerned that the Democrat takes on a life of itself when you're very sharp movements within the market, you have negative impact of wealth
  • 03:43 of the investors in the US and that has a knock on impact onto
  • 03:47 the consumption, the consumer confidence and therefore consumption.
  • 03:52 But
  • 03:53 I guess that I'm, I'm actually happy that I'm not in a position to make that call.
  • 03:57 The
  • 03:58 issue that I think we see right now is that a lot of the concern is that whether the Fed has basically held rates too high for too long and therefore creating
  • 04:09 a
  • 04:10 too tight a liquidity environment that could actually constrain
  • 04:13 indirectly caused a recession.
  • 04:16 I think they're probably likely to move.
  • 04:18 I think the last FOMC also indicated.
  • 04:20 Located that they're guiding the markets to expect cuts probably in the September quarter depending on.
  • 04:25 Data,
  • 04:25 the recent labor market survey
  • 04:28 data also is probably giving us some
  • 04:30 room for that given the dual mandate that the Fed has.
  • 04:34 But from a personal opinion perspective and obviously non economist
  • 04:39 from that perspective, I don't think the Fed should intervene with emergency rate card or
  • 04:44 resurrect the
  • 04:45 Federal Reserve.
  • 04:46 Put if you will.