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Markets to Remain 'Very Volatile,' OCBC's Menon Says

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Bloomberg Aug 12 00:02 · 33.1k Views

Vasu Menon, managing director of investment strategy at OCBC Bank, discusses the volatility in financial markets, the opportunities he sees, and the Federal Reserve. He speaks on "Bloomberg: The Asia Trade."

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Transcript

  • 00:00 When it comes to particular how much further we have to go
  • 00:03 for the yen carry trade unwind, do you expect to see this play out
  • 00:07 over the next few weeks and months We head into that?
  • 00:10 Of course, a political uncertainty
  • 00:12 into November is
  • 00:14 a high degree of volatility, just something that markets and investors should be
  • 00:19 really bracing for now.
  • 00:23 Without a doubt.
  • 00:24 I think, you know,
  • 00:25 the next coming weeks,
  • 00:26 coming months, you'll see the market volatile for the reasons you
  • 00:30 so rightfully mentioned.
  • 00:31 I mean, we're still unclear as the yen carry trades are fully unwound.
  • 00:35 Yes, the yen is weakened now and that has taken some pressure of the carry traits.
  • 00:40 But you know, the unwinding of carry traits that is.
  • 00:42 But you know, it's possible that the yen could strengthen.
  • 00:44 Once again.
  • 00:44 We see the yen
  • 00:45 trading in the short term within the range of 1:40 to 1:50.
  • 00:49 But if the
  • 00:50 yen does strengthen towards 140 level, you know, you could see carry traits come back into play once again.
  • 00:55 Because
  • 00:56 if you look at the Bank of International Settlement data, I mean, Japanese financial institutions have
  • 01:01 lent almost US $1 trillion
  • 01:04 in yen
  • 01:06 to foreign borrowers, you know, and some of it, of course, is gone, have gone into carry traits.
  • 01:10 So, you know, it's a bit opaque.
  • 01:11 We're not sure how much more days to go, but
  • 01:14 it's something that investors, investors need to brace for in in addition to the
  • 01:17 slew of economic data this week and in the coming weeks in the run up to September 18th FETT meeting and of course
  • 01:23 the year's election.
  • 01:24 So quite a lot of happening in the next
  • 01:26 few weeks and months.
  • 01:27 And so without a doubt,
  • 01:29 there's going to be quite a bit of volatility in the markets
  • 01:31 and carry traits being one of the
  • 01:33 uncertainties that we we have to deal with.
  • 01:36 It's tempting to be opportunistic, right?
  • 01:39 But this is not the time yet for
  • 01:41 aggressive bottom fishing.
  • 01:45 Yes, that's what we're telling our
  • 01:47 clients and our readers
  • 01:50 because we feel that things are still playing out.
  • 01:52 You know, the markets are nervous about the US economy,
  • 01:57 and you've got lots of economic data coming out this week for.
  • 02:00 Example, you've got
  • 02:01 3 fat speakers
  • 02:02 speaking this week
  • 02:03 and in the Rex 5.
  • 02:05 To six weeks in the run up to the September 18 FET meeting, you do have
  • 02:09 quite a lot of data
  • 02:11 on tap.
  • 02:12 And then, of course, you've got the Jackson Hole.
  • 02:15 You know, summit that's going to take place on August 23rd where
  • 02:18 Jerome Powell speaks and then the US.
  • 02:20 Election so
  • 02:21 you know, I think the markets are going to be very volatile and I think investors don't want to fire all their.
  • 02:25 Bullets.
  • 02:25 They should use the volatility as an opportunity to
  • 02:29 accumulate on Sharp.
  • 02:30 Pullbacks
  • 02:30 because we're not negative in the medium term, we are quite cautious
  • 02:34 in the run up to the end of this year,
  • 02:36 but 2025,
  • 02:38 we think that once we go past some of this,
  • 02:41 you know, headwinds, the markets might look slightly better.
  • 02:48 It was really interesting to see the gyrations especially in the treasury space, global bonds sort of becoming a hedge now again when it comes to market volatility.
  • 02:56 At the same time, we saw all of those moves
  • 02:58 being retraced as well is a key take away from what happened in the last few days.
  • 03:03 The fact that perhaps in the near future with this inverse correlation between bonds and global stocks again
  • 03:09 taking hold, that really it could be a meaningful hedge
  • 03:17 perhaps.
  • 03:17 You know, yes, without a doubt.
  • 03:19 I mean, we believe that, you know, there are opportunities in the fixed income space without a doubt.
  • 03:23 I mean,
  • 03:24 10 year yields, as you said, have
  • 03:26 actually retraced, you know, they came off quite a bit and they're now back to almost a 4%
  • 03:30 handle.
  • 03:31 That's because, you know, the investors have
  • 03:33 all the markets have taken a view that, you know, perhaps
  • 03:35 the US economy is not going to fall off the Cliff
  • 03:38 as they were worried about after the employment numbers for July.
  • 03:41 I think optimism is returning back to the markets, but that could change very quickly
  • 03:45 and yields could come down once again and
  • 03:48 you know, that could actually be
  • 03:50 positive for bond market.
  • 03:52 So you know, we think the opportunities in both
  • 03:54 the equity pay equity space as well as a bond space
  • 03:57 and what we're telling our clients is to keep a diversified portfolio is very important for that.
  • 04:03 And so, you know, we're not negative on either asset class
  • 04:09 when it comes to the equity space, especially Asian stocks.
  • 04:12 Where do you find value at this point?
  • 04:17 Well, you know, I think across the the board in Asia there there is some value emerging.
  • 04:22 I mean the recent sell off has you know created a bit more value.
  • 04:26 We like the Singapore stock market for example because we think valuations are very low
  • 04:30 price to book and price earnings are very, very low.
  • 04:32 The market offers you
  • 04:34 pretty attractive dividend yield.
  • 04:36 We see rotation taking place from the tech sector towards a non tech sector
  • 04:40 and this is where the Singapore stock market is actually quite well positioned.
  • 04:43 The Japanese stock market is looking interesting as well because in yen terms
  • 04:47 since mid-july, the the MSCI
  • 04:50 Japan index is corrected
  • 04:52 almost 15%.
  • 04:54 That's a very sharp correction.
  • 04:55 Now we remain
  • 04:56 medium term positive in Japan.
  • 04:58 We think that the pullback is going to create.
  • 05:00 Opportunities and of course
  • 05:02 again not to buy aggressively, but you know
  • 05:04 to accumulate
  • 05:05 gradually in the markets.
  • 05:07 China,
  • 05:08 we know that's a hard one to call, but.
  • 05:10 Again, medium term, long term positive in China because so much of negative news has been baked in,
  • 05:16 you know, so something to keep an eye on as well.