Latest / The Dutch Investors / #42 | Investing in Asian equities and markets | Interview w/ The Asia Economist

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#42 | Investing in Asian equities and markets | Interview w/ The Asia Economist · The Dutch Investors

• 0:00
  SPEAKER_01: Welcome back to the Dutch investors.
• 0:02
  SPEAKER_01: Today's guest had a front row seat at the Asia's economic rise over the past few decades.
• 0:08
  SPEAKER_01: He's advised investors to uh multinationals, spent over 20 years as the chief economist and head of research, and please correct me if I'm wrong later, for Asia Pacific at Deutsche Bank, and he now runs his own Substack, uh, Temple Street Advisors.
• 0:25
  SPEAKER_01: It's a very insightful newsletter, and I'm very excited to welcome him here.
• 0:29
  SPEAKER_01: So, Michael Spencer, welcome to the show.
• 0:31
  SPEAKER_00: Thank you very much, Seam.
• 0:33
  SPEAKER_00: Um thanks for the invitation to join you on your podcast.
• 0:35
  SPEAKER_01: I'm uh excited to talk to you as well.
• 0:38
  SPEAKER_01: I think you'll have some unique insights.
• 0:40
  SPEAKER_01: Uh, it's not every day I talk to someone with the expertise you have, especially uh focused on Asia.
• 0:46
  SPEAKER_01: And it's a market we're very interested in uh learning more about.
• 0:50
  SPEAKER_01: So before we get into all the questions around China and Asia, equities, macros, whatever it may be, I'd love to hear a bit about uh you.
• 1:00
  SPEAKER_01: So let's start at the beginning.
• 1:02
  SPEAKER_01: How did you get into economics and investing yourself?
• 1:07
  SPEAKER_00: Well, in my experience, there are two types of economists.
• 1:10
  SPEAKER_00: There are failed physicists and failed historians.
• 1:13
  SPEAKER_00: And I'm in the second camp.
• 1:15
  SPEAKER_00: So failed physicists are people with a strong mathematical bias who are attracted to the idea of using statistics and models and mathematics to try to understand this very complicated thing we call the world and economics and people as they behave as economic agents.
• 1:31
  SPEAKER_00: And then there are people like me who were attracted into economics because it provides a more rigorous way to tell stories about the world.
• 1:39
  SPEAKER_00: Uh, economics training essentially just gives you a set of tools to understand the world in a different way from somebody who's maybe an anthropologist or uh or a traditional historian.
• 1:50
  SPEAKER_00: So I I came at it through that route.
• 1:52
  SPEAKER_00: Actually, I went to university to study history.
• 1:54
  SPEAKER_00: The entire department was on sabbatical, so I ended up doing more and more economics courses.
• 1:58
  SPEAKER_00: And initially I found it quite easy.
• 2:00
  SPEAKER_00: That changed as I got into graduate school.
• 2:03
  SPEAKER_00: Um, but it it just continues to provide for me a really interesting way to think about the world.
• 2:10
  SPEAKER_00: Um, and as you say, I started out actually at the International Monetary Fund for seven years as uh something of a financial crisis ambulance chaser.
• 2:20
  SPEAKER_00: I ended up in a small team that looked at international capital markets, and it was at a time that was very volatile for financial markets globally.
• 2:29
  SPEAKER_00: You had a Mexican crisis in 1994, you had the ERM speculative attack in 1993, Russian default.
• 2:36
  SPEAKER_00: So there was a lot going on.
• 2:38
  SPEAKER_00: Uh, and and we just spent seven wonderful years just sort of trying to understand financial crises and advise the IMF on how to, if you can't predict them, how do you respond to them?
• 2:50
  SPEAKER_00: And then, of course, in 1997 there was a big crisis in Asia.
• 2:53
  SPEAKER_00: And so I had the opportunity to go to Hong Kong with Deutsche Bank and uh spent 25 years uh watching this this remarkable transformation of of the region that now accounts for almost half of world GDP.
• 3:07
  SPEAKER_00: Can you tell me a bit more about that crisis?
• 3:09
  SPEAKER_00: What happened?
• 3:10
  SPEAKER_00: Uh I'm not familiar.
• 3:12
  SPEAKER_00: Sure.
• 3:12
  SPEAKER_00: So in the early 1990s, what you had was uh uh you have this thing that I call the Asian economic development model, um, which in some respects is a replication of how Japan grew after the Second World War.
• 3:27
  SPEAKER_00: And it's a very export-oriented development model, and and that's quite different from uh at the time the way other emerging regions in Latin America and Africa and in Central Europe behaved.
• 3:39
  SPEAKER_00: They were much more focused on trying to substitute, you know, create domestic production to avoid importing goods.
• 3:47
  SPEAKER_00: In places like Korea and Taiwan, you had explicit programs from the governments to encourage people to invest in activities that were targeted at the foreign consumer.
• 3:56
  SPEAKER_00: And that sort of rippled through the region.
• 3:59
  SPEAKER_00: So you had this surge of investment from abroad into the region to create the capacity to produce goods for Americans and Europeans, essentially.
• 4:09
  SPEAKER_00: Um, but with that investment initially came large current account deficits.
• 4:15
  SPEAKER_00: And uh governments thought at the time that having a fixed exchange rate would be, would provide enough certainty to foreign investors uh to attract that investment.
• 4:26
  SPEAKER_00: But those two things came into conflict in the mid-90s.
• 4:29
  SPEAKER_00: You had accumulating current account deficits, running down foreign exchange reserves to try to maintain stable currencies, and one by one from the middle of 1997, those fixed exchange rates were broken.
• 4:42
  SPEAKER_00: And what we had discovered in the literally the weeks leading up to that was that behind the scenes, and for lack of data, really only anecdotally, everybody in these countries had built up enormous foreign currency liabilities on the assumption that the exchange rates would stay fixed.
• 4:59
  SPEAKER_00: And so when the exchange rate was devalued, suddenly everybody's underwater on their foreign borrowing.
• 5:05
  SPEAKER_00: And so you had a wave of banking crises through Indonesia, Malaysia, the Philippines, Thailand, Korea, Taiwan, uh, and the other countries were affected badly as well.
• 5:16
  SPEAKER_00: You had a massive recession because that fixed contract essentially was broken, and people didn't understand fully the consequences of doing that until it was too late.
• 5:26
  SPEAKER_00: Um, and so I spent the first you know 18 months in Hong Kong telling people how terrible it was going to get, because you know, the banking system has been destroyed, and until you recapitalize the banks, you're not going to be able to intermediate domestic capital, and that's essentially what happened.
• 5:41
  SPEAKER_00: It was a horrible recession.
• 5:44
  SPEAKER_00: But what we also learned was when you devalue a currency, 40 or 50 percent against the dollar, suddenly you become an even more competitive exporter.
• 5:53
  SPEAKER_00: So, to I think everybody's surprised, by 1999 these economies were booming again.
• 5:58
  SPEAKER_00: Yeah, so it was a really interesting time.
• 6:01
  SPEAKER_00: And then you got China coming in 2001, who said that looks like a great development strategy, but we're gonna keep the capital account closed so we don't build up those same foreign currency liabilities.
• 6:13
  SPEAKER_00: And and that's the story of the the 2000s: China learning how to export, but not letting people build up those foreign debts.
• 6:21
  SPEAKER_01: Fascinating.
• 6:22
  SPEAKER_01: To come back to your first point on starting out, I can kind of relate.
• 6:27
  SPEAKER_01: Uh, as an educator myself, I uh I also like telling stories and writing and educating people.
• 6:33
  SPEAKER_01: I suppose that's one of the reasons you started the Substack.
• 6:37
  SPEAKER_01: Um Temple uh Temple Street Advisors, I think it's called.
• 6:42
  SPEAKER_01: Um, what was the real motivation starting it all?
• 6:46
  SPEAKER_00: Yeah, yeah.
• 6:48
  SPEAKER_00: Yeah, so I as as head of research and chief economist, there are broadly two parts of the job.
• 6:55
  SPEAKER_00: One is providing content, talking to investors, writing about what's going on, educating people in a very real sense.
• 7:04
  SPEAKER_00: Most of my conversations with investors were around some way to try to explain to them what was happening and what I thought would happen in the future, obviously, more usefully.
• 7:15
  SPEAKER_00: Um, the second part of the job is administering what had become, at one point, you know, 200 plus analysts across 18 countries, and that's an incredibly complex um problem.
• 7:27
  SPEAKER_00: Um, so what I what I hope to achieve with Temple Street Advisors and the Substack note that I call the Asia Economist, because I've been an Asia Economist for now more than 30 years, um, is the the fun part of the job, the creating the content, the you know, engaging with people, trying to explain, understand for myself what's going on, and explain to people what's going on, um, with a broader perspective than I noticed was available both on Substack or Twitter or elsewhere.
• 8:00
  SPEAKER_00: There's a lot of people writing about China, few people writing about Japan and India, not many people writing about the rest of Asia.
• 8:06
  SPEAKER_00: So uh I'm I'm trying to recreate the fun part of my job.
• 8:10
  SPEAKER_00: Um, and since it's a company that consists of just me, I don't have any of the admin that went along with being uh a head of research.
• 8:18
  SPEAKER_01: Does this give you a the feeling of more freedom to where you can just talk about what you want to talk about or absolutely was that different when you were still working for the bank?
• 8:29
  SPEAKER_00: Absolutely, both in terms of substance and style, um, for very good reasons, there there are actually a lot of constraints on what what you can say and how you can say it if you're working for a bank.
• 8:41
  SPEAKER_00: And it's not that people are trying to be dishonest, it's just that you the the regulators and and and the banks expect you to be even, you know, sort of level-headed, even, moderate, uh fact-based.
• 8:56
  SPEAKER_00: Um, you know, your opinion doesn't matter.
• 8:58
  SPEAKER_00: You're trying to explain to people what the facts are, where the facts are leading you.
• 9:02
  SPEAKER_00: And that's absolutely appropriate for you know when I was working for a bank.
• 9:08
  SPEAKER_00: Uh, when I'm just writing for myself, really, and and the 1500 odd people now that read my note, um, I have the flexibility to be a little bit more opinionated than I could get away with working for a bank.
• 9:20
  SPEAKER_00: Um, and also, you know, I yeah, I I I don't have people telling me, you know, it'd really be helpful if you could write about X.
• 9:27
  SPEAKER_00: I I write about what I think is interesting.
• 9:30
  SPEAKER_00: Um, the fact, however, that it's just me does mean that um uh you know there are always going to be far more interesting, far more things that I want to write about and talk about than I'm able to do based on the limited number of hours in a day.
• 9:46
  SPEAKER_00: Um and that, to be honest, that's a balance I haven't quite gotten right.
• 9:50
  SPEAKER_00: I I the the vehicle that I came out with is uh a note called Talking Points, which sort of provides people on Monday morning, first thing in their email box uh a summary, my view of what's happened over the last week and what they should look out for over the next week or two, trying to put the world into perspective.
• 10:08
  SPEAKER_00: Um it's not really a note that provides much scope to go deeply into things, and uh I'm now trying to sort of figure out how to how to do more of that.
• 10:18
  SPEAKER_00: I have done some along the way, some little bit more thinking pieces rather than sort of quick reaction.
• 10:25
  SPEAKER_00: Um, but uh but that's the downside of just being me.
• 10:29
  SPEAKER_01: Yeah.
• 10:30
  SPEAKER_01: It's the reason we teamed up um because uh doing it alone is difficult, because your most precious resource is time, but it's also the most scarce resource.
• 10:44
  SPEAKER_01: Uh you don't you only have 24 hours and you gotta sleep, you gotta eat, you gotta you have a family, so there's uh that's the limited time.
• 10:50
  SPEAKER_01: Exactly.
• 10:50
  SPEAKER_01: I think we can both agree that the world is a very dynamic.
• 10:55
  SPEAKER_01: Before we started recording, we briefly talked about Trump and what's happening and your thoughts on it.
• 11:02
  SPEAKER_01: So there is more than enough stuff going on in the Western world.
• 11:07
  SPEAKER_01: Uh however, you decided to focus on Asia mostly for most of your career.
• 11:13
  SPEAKER_01: What drew you to this part of the world?
• 11:16
  SPEAKER_00: It is the most to me, it's just simply the most interesting part of the world.
• 11:21
  SPEAKER_00: As an economist, you know, I show up in Hong Kong and I am responsible for a country like Japan, a very wealthy, aging, slow-growth country, but a very complex, and particularly from a you know an outside perspective, sometimes difficult to understand country.
• 11:38
  SPEAKER_00: And then you've got uh you know these massive emerging market economies in China and India, and then lots of countries in between of different sizes, uh, some very focused on producing commodity goods for export, some very focused on producing electronics goods.
• 11:54
  SPEAKER_00: So it was that diversity that um really attracted me to take the job to move to Hong Kong, the opportunity to think about, you know, it is the fastest growing part of the world, it's it's going to dominate the global economy.
• 12:09
  SPEAKER_00: And there is the full range of uh kinds of challenges and interesting questions that you would want to think about as an economist when you've got one of the richest countries in the world and some of the poorest countries in the world.
• 12:22
  SPEAKER_01: Do you have some examples of countries you used to follow a lot or follow right now, besides China?
• 12:27
  SPEAKER_01: I think that's the most obvious one.
• 12:29
  SPEAKER_00: Uh well, yeah, so actually my first engagement with Asia was in Japan.
• 12:33
  SPEAKER_00: Uh, and again, it was a banking crisis.
• 12:35
  SPEAKER_00: Um, very early 1990s.
• 12:37
  SPEAKER_00: I showed up at the IMF in 1990.
• 12:39
  SPEAKER_00: By 1991, I was writing memos to the board about whether we could believe what the regulators were saying about non-performing loans in the Japanese banking system and whether we should be worried about a financial crisis.
• 12:52
  SPEAKER_00: Um, and and it was that kind of lens of you know, the way of thinking about economies through the health of the banking system that then made 1997 such a great time to move to Asia for reasons I explained earlier.
• 13:05
  SPEAKER_00: Um, but I think uh and this, you know, as I was thinking about setting up uh Temple Street Advisors, you know, as I said, I look around what you can get um in North America or Europe in terms of intelligence on what's going on in Asia and outside China there's there's very little.
• 13:24
  SPEAKER_00: Um, but there are very interesting things going on in the ASEAN countries, for example.
• 13:30
  SPEAKER_00: Um, and for them, real challenges because they have they have really developed, as I said, on the basis of this sort of Asian development model, which is you allow foreign companies to come and use your land, labor, and capital to produce goods that feed into a Chinese production process that makes mobile phones for Americans or computers or what have you.
• 13:55
  SPEAKER_00: Uh very electronics uh focused uh manufacturing sectors where they're not really producing the final goods.
• 14:04
  SPEAKER_00: So you're really dependent on fitting what you're trying to do is fit into a supply chain that runs up and down the Asia region.
• 14:12
  SPEAKER_00: Um and what Donald Trump has been saying for now seven or eight years, and people really haven't wanted to listen, is that in his view, the the United States should no longer accept that.
• 14:24
  SPEAKER_00: If you want to trade with the United States, you can't be doing that as part of a Chinese-owned or Chinese-dominated supply chain.
• 14:32
  SPEAKER_00: So if you're in Thailand or Malaysia or Vietnam, which is really at the forefront of this given the surge of Chinese investment into Vietnam in the last few years, uh, you you bet on that strategy of being of allowing Asian, Chinese American companies to make hard drives or screens or cases or keyboards or what have you, um, that ultimately you're gonna end up in the United States and Europe.
• 14:58
  SPEAKER_00: And the US president just told you that that's not gonna happen anymore.
• 15:02
  SPEAKER_00: You know, if you're a Vietnamese company and you're cooperating with a Chinese company to make things for Americans, uh you're gonna face the Chinese tariff, if not a higher tariff.
• 15:13
  SPEAKER_00: And I think still to this day, people in ASEAN haven't really woken up to that, that their whole development strategy for the last 60 years um potentially is completely upended.
• 15:26
  SPEAKER_00: Trump will find a way to separate the United States from China, particularly in the electronic supply chain, and he will not allow investors just to move production to Vietnam, Thailand, Malaysia and continue on business as usual.
• 15:41
  SPEAKER_00: Um, and and that's a story that I think even within Asia is not commonly told, and certainly in the rest of the world, people I think I think most non-economists, and probably even many economists, still have a very simple view of what we mean when we're talking about trade.
• 16:02
  SPEAKER_00: Uh you know, when you when you go to university and you you you you learn about international trade, you're talking about, you know, Portugal sells wine to England and imports wool.
• 16:12
  SPEAKER_00: That's not the world.
• 16:14
  SPEAKER_00: Uh almost every country that we care about exports predominantly intermediate products that go into somebody else's production process that may go many times across borders before it's a final product that somebody might actually want to buy in a shop.
• 16:30
  SPEAKER_01: Do you mean like the resources, or like does that mean when you say intermediate, like the steps in between?
• 16:38
  SPEAKER_00: So, for example, when I showed up in Hong Kong in 1997, virtually all of the hard drives that went into computers around the world were made in Thailand.
• 16:48
  SPEAKER_00: So they were extremely efficient at making a product that 99% of consumers never bought.
• 16:54
  SPEAKER_00: They bought it as part of a computer.
• 16:58
  SPEAKER_00: Very few people were building their own computers and were in the market to buy just the hard drive.
• 17:03
  SPEAKER_00: Um, Philippines is an enormous business taking computer chips that Intel would make, plugging them into a machine to make sure they work, and then exporting them back to where Intel wanted to send them to.
• 17:16
  SPEAKER_00: Nobody's buying that chip except another company to put into a phone or a computer.
• 17:22
  SPEAKER_00: Um, so you are completely dependent on your customer, which is another company, not a consumer, you're dependent on that customer being able to sell to the consumer in the United States and in Europe.
• 17:37
  SPEAKER_00: And that worked beautifully from the 1970s and 80s for that part of the world until I would argue 2018, when Donald Trump said we've got to stop this.
• 17:48
  SPEAKER_00: So when they talk about supply chain security in the United States, it's basically shorthand for saying we don't want China anywhere near a production process that ends up with a phone or a computer or any part of the ICT infrastructure in the United States that has anything Chinese in it.
• 18:07
  SPEAKER_00: So if you're sitting in Thailand and you're exporting something to China or importing something from China and it fits together with the product, the widget that you make and you send it to somebody else, and seven steps down the road there's a phone or a computer or something, a microphone, and that gets sold to a consumer at Best Buy in the United States.
• 18:28
  SPEAKER_00: That Trump wants to end that.
• 18:30
  SPEAKER_00: He wants all of that manufacturing to move back to the United States, or at least move to a country where he is assured that there is no Chinese supplier feeding into it.
• 18:42
  SPEAKER_00: And that requires potentially ripping apart all of these supply chains in Asia and redesigning them.
• 18:48
  SPEAKER_01: Yeah, it's interesting that you say this because I've been thinking about this recently as well, where especially with all the things that Trump is saying, and so I was I was actually thinking about the supply chain as well.
• 19:02
  SPEAKER_01: And so you mean, for example, let's take ASML, they'll need precious metals from Africa, they need special lenses from Germany and the United States, then the machine is being made in the Netherlands, then it gets sold to TSMC in Taiwan, where they sell the chips to all all around the world.
• 19:20
  SPEAKER_01: And yeah, it's it's very complex if you think about it, and you need correct friends and business partners to help each other, and you need to benefit from each other's strengths.
• 19:32
  SPEAKER_01: And I think what Trump is doing is is going to hurt them in the in the long run.
• 19:37
  SPEAKER_00: I well, I think it will, but uh this is I think the way um this is the way I understand where Trump is coming from.
• 19:45
  SPEAKER_00: Okay.
• 19:46
  SPEAKER_00: And you know, let's start with something that is most easiest to understand.
• 19:51
  SPEAKER_00: Uh so the United States Defense Department has this massive procurement budget, and they realized 15, 20 years ago that an awful lot of that had computer chips that came from Asia or other components, or maybe the entire product is coming from Asia.
• 20:08
  SPEAKER_00: Uh, and then they start getting worried.
• 20:10
  SPEAKER_00: Well, you know, if there's a Chinese supplier somewhere in that process, maybe they're not making, maybe it's a not a Chinese semiconductor in this uh bomb or whatever or device.
• 20:22
  SPEAKER_00: But if somewhere on the way some Chinese agent could sit it, could sit next to somebody in a workbench and and upload some code where all of a sudden my equipment's not going to work or they're feeding information back to China that I don't want them to know.
• 20:37
  SPEAKER_00: And I don't really know, I don't understand how I'm gonna be able to search for this.
• 20:40
  SPEAKER_00: I see.
• 20:41
  SPEAKER_00: It's easier just to say no Chinese companies can get anywhere near the Defense Department supply chain.
• 20:47
  SPEAKER_00: Well, the Defense Department isn't going to replicate a TSMC in in Texas all by itself.
• 20:55
  SPEAKER_00: So you then say, okay, well, if we only want communications devices for the for the US military and other military equipment, we only want those to be made in the United States.
• 21:07
  SPEAKER_00: We have to sort of extend that to for all Americans to get uh an industry that would be viable.
• 21:14
  SPEAKER_00: Otherwise, the Defense Department budget blows up even more.
• 21:17
  SPEAKER_00: So I think that's what happened.
• 21:19
  SPEAKER_00: But you know, starting in the late, you know, first term under President Obama, Americans realized that they had a genuine security risk, and that the way to solve that genuine security risk was to broaden your definition of security and say, all right, Americans in general should not be importing technology where there's a risk that a Chinese company like Huawei, which became the poster child for this concern, um a company like Huawei might somehow have interfered with the technology, uploaded some software, or created a backdoor so they can spy on us or change.
• 22:00
  SPEAKER_00: How the equipment functions.
• 22:01
  SPEAKER_00: That I think is where Trump is coming from.
• 22:04
  SPEAKER_00: And you can see that, yeah, that sounds pretty reasonable.
• 22:08
  SPEAKER_00: So the question for Trump is: if I want to move all of that production back to the United States, I want to have as big a market for that as I can to make it as profitable for TSMC and other companies to move production to the US.
• 22:26
  SPEAKER_00: If I end up with simply the US market and the whole rest of the world continues to trade amongst itself as normal as before, I'm cutting myself off from the rest of the world, and I'm going to end up with a much higher cost of capital because it's going to be much more.
• 22:46
  SPEAKER_00: We know it's going to be 30 or 40% more expensive to make an iPhone in the United States completely from start to finish than it's currently possible in Asia.
• 22:54
  SPEAKER_00: So for Trump, the more you can get countries to come with you, exclude China from your supply chain, so therefore you're safe to be part of an American supply chain.
• 23:07
  SPEAKER_00: If you can get the whole world ex China, that might work.
• 23:11
  SPEAKER_00: If it ends up with the whole world X the United States, then I think this blows up in the US.
• 23:18
  SPEAKER_00: You end up with an isolated US where there's a technology stack that makes sense in the United States, but it's very expensive, that nobody else wants because it's very expensive.
• 23:30
  SPEAKER_00: And the whole rest of the world continues to trade and innovate amongst each other, and the US is isolated.
• 23:37
  SPEAKER_00: And that to me is the direction we're going today, because by starting his trade war with China, with by actually imposing tariffs on Canada, Mexico, Japan, and the EU, he has alienated any country that might actually be willing to discuss your security concerns, and maybe we have similar concerns.
• 23:58
  SPEAKER_00: As in his first term, you know, he was making some progress in convincing European countries that maybe there was some logic to separating your technology stack from a Chinese supply chain.
• 24:11
  SPEAKER_00: He has completely blown, as you say, the trust with any other country.
• 24:16
  SPEAKER_00: So the way we're heading now is we're going to end up with the United States isolated, and the whole rest of the world is going to sign up for free trade amongst each other.
• 24:26
  SPEAKER_00: So you have in Asia, you have this CPTP, sort of the Trans-Pacific Partnership that became the TPP X United States.
• 24:36
  SPEAKER_00: You now have the UK has joined, other European countries, Canada said they want to join, China wants to join.
• 24:43
  SPEAKER_00: You could end up with essentially the rest of the world saying, we still believe in free trade and free investment.
• 24:49
  SPEAKER_00: And we'll just, you know, we'll park the US over there.
• 24:52
  SPEAKER_00: Now that's painful.
• 24:53
  SPEAKER_00: The US is the biggest economy in the world.
• 24:55
  SPEAKER_00: But if that's where you want to go, fine.
• 24:57
  SPEAKER_00: But you can't take us with you.
• 24:59
  SPEAKER_00: So, in very crude terms, again, I mean the message to Vietnam and other Asian countries is if you want to trade with the United States, you can't trade with China.
• 25:08
  SPEAKER_00: And that's not something that I think they will sign up for.
• 25:12
  SPEAKER_00: China is more important to these economies as a source of imports and as a destination for exports than the US is.
• 25:20
  SPEAKER_00: So if you force them to choose, it's not obvious they're going to choose the US.
• 25:25
  SPEAKER_00: So we I think we, you know, we're going down the path where the US will remove itself from the rest of the world.
• 25:32
  SPEAKER_00: They will end up with a technology stack that works for them, but it will be hugely expensive compared to the rest of the world.
• 25:40
  SPEAKER_01: Fascinating to think about, huh?
• 25:43
  SPEAKER_01: Sorry for dragging you into the old Trump talk.
• 25:45
  SPEAKER_00: I let's No, no, no, it's it's sadly, I mean, since January 20th, that that has been the beginning of every conversation.
• 25:53
  SPEAKER_00: You you you know, there are certain things you have to establish in your mind about what's going on in the world.
• 25:58
  SPEAKER_00: And that is one of them.
• 26:00
  SPEAKER_00: So, for example, I mean, we're we're talking on the 29th of May.
• 26:03
  SPEAKER_00: Uh, you know, barely 12 hours ago, the US Court of International Trade said that, you know, your tariffs are illegal, the the reciprocal tariffs.
• 26:13
  SPEAKER_00: Um now, so you have to make up your mind this morning if you're an investor.
• 26:17
  SPEAKER_00: What does that mean?
• 26:18
  SPEAKER_00: Is Trump going to back down?
• 26:19
  SPEAKER_00: Or is he going to find some other way to replicate those tariffs?
• 26:22
  SPEAKER_00: So my assumption is he'll find, you know, use section 122 of the 1974 Trade Act, and he will find another way to temporarily put in place all of these tariffs, and then he'll try to find some way over the next six months to make that permanent.
• 26:37
  SPEAKER_01: So, to follow up on what you just said, do you think staying on the ball and um uh watching the news, seeing how what what is happening around the world, do you think that is actually important for investors that are focused on the next 10, 20, uh, what even maybe 30, 40 years for their investing life?
• 27:02
  SPEAKER_01: Or do you think it's it's it's more useful for, I don't know, hedge funds, um, traders, um, banks?
• 27:12
  SPEAKER_00: I would submit that even for somebody sitting on a trading desk, you you need to think about risks to your portfolio that are, as you say, very short term.
• 27:23
  SPEAKER_00: You know, what's gonna happen over the next 48 hours, six weeks?
• 27:26
  SPEAKER_00: Is that and what is my view of the world two years down the road?
• 27:31
  SPEAKER_00: What is my view of the world 20 years down the road?
• 27:34
  SPEAKER_00: And are the developments that are the trends that I'm seeing in the very short term, are they taking me back towards where I think we're gonna be in two years or further away?
• 27:45
  SPEAKER_00: And and that that's how I think investors, uh good investors sort of think, right?
• 27:51
  SPEAKER_00: There's short-term volatility.
• 27:54
  SPEAKER_00: Am I gonna you know sell a rally in equities because I'm fundamentally bearish, or am I gonna ride that because actually I'm fundamentally bullish?
• 28:02
  SPEAKER_00: That's I think the way investors think.
• 28:04
  SPEAKER_00: And that's I've got a medium-term view of how I think economies and markets are gonna behave.
• 28:12
  SPEAKER_00: And I can't I can't let the short-term trend knock me off that medium-term view unless everything suddenly starts to line up to tell me my medium-term view is wrong.
• 28:23
  SPEAKER_00: Very few people on a trading desk are going to are going to have a 20-year view.
• 28:28
  SPEAKER_00: Uh, but when you get into the C-suite of a corporation, there, their weight is all right, we've got short-term staff, I've got a treasury department, their job is to manage our risks in the short-term, make sure that we don't get blown out by an exchange rate or interest rate spike.
• 28:44
  SPEAKER_00: My view is my role as a manager is to have a two or three-year view for strategic planning purposes.
• 28:51
  SPEAKER_00: But when we're thinking about making a big capital investment, that's where my 10, 20, 30-year view comes into play.
• 28:58
  SPEAKER_00: And it's a similar, I would submit it's a similar thought process.
• 29:02
  SPEAKER_00: We may see trends over the next year that say, well, consumption in China looks really flat.
• 29:07
  SPEAKER_00: But my 20-year view is still bullish.
• 29:10
  SPEAKER_00: My 20-year view on India is even more bullish.
• 29:14
  SPEAKER_00: So, you know, what what's our exposure over the next six, eight weeks?
• 29:20
  SPEAKER_00: What are our plans?
• 29:22
  SPEAKER_00: You know, what are our forecasts telling us about the company's profitability over the next couple of years?
• 29:27
  SPEAKER_00: But thinking further ahead, that next big investment is going to be driven by my long-term view, not my short-term view.
• 29:36
  SPEAKER_00: Uh, so I think for different it what I find talking to different types of clients at the bank was that everybody essentially had the smart people had essentially that same kind of thought process.
• 29:47
  SPEAKER_00: You just shifted the the time frame.
• 29:49
  SPEAKER_00: A hedge fund can have a half-hour view, uh, stretching out to maybe a six-month view.
• 29:58
  SPEAKER_00: Um, somebody who's running a long-only pension fund portfolio will probably be more interested in the 12 to 24 month view.
• 30:07
  SPEAKER_00: And then corporates genuinely, I mean, I I had conversations with big European companies where you you are asking the 30 or 40 year view of India versus China.
• 30:17
  SPEAKER_00: Um, and and and that's you know part of what makes investing interesting, right?
• 30:23
  SPEAKER_00: There's always going to be a different perspective, both in terms of time and and and you know what what matters for you.
• 30:30
  SPEAKER_01: Definitely, yeah.
• 30:32
  SPEAKER_01: So let's shift uh focus and talk about Asia, yeah, especially from a macro and investing standpoint.
• 30:38
  SPEAKER_01: Now, for a lot of investors, especially those in based in the United States or Europe, Asia can feel like this massive investing space.
• 30:47
  SPEAKER_01: It's it can be exciting, but can also be quite intimidating.
• 30:50
  SPEAKER_01: It's home to some of the fastest growing economies, uh, but the culture is a lot different and it has a lot of complexity.
• 31:00
  SPEAKER_01: So, what makes Asia such a compelling place for investors, do you think?
• 31:05
  SPEAKER_00: Well, I think for for investors, what makes Asia interesting is precisely that diversity that I talked about before.
• 31:13
  SPEAKER_00: You know, potentially there are real opportunities for diversification of your risks.
• 31:19
  SPEAKER_00: Uh, we've got a couple of markets, uh, Indonesia and Thailand lately have been negatively correlated with US equities.
• 31:26
  SPEAKER_00: Now they're not big markets, but if you're, you know, if you're running a portfolio, a smallish portfolio, that that may be an opportunity to get some diversification.
• 31:36
  SPEAKER_00: Um, but as I said, you've got advan rich, advanced economies, you've got very poor countries that are inherently growing more quickly.
• 31:45
  SPEAKER_00: Uh, what makes it challenging for investors though is the lack of information.
• 31:51
  SPEAKER_00: Um, if you're a European or American investor, you can be 99% sure that you are receiving information from the companies you invest in at the same time as everybody else.
• 32:03
  SPEAKER_00: Um and when that doesn't happen, the regulator finds out there's hell to pay for the companies that leak information selectively.
• 32:11
  SPEAKER_00: Unfortunately, in Asia, it is still the case that you know, if you're not there on the ground, you really can't assume that you're going to find out what's going on at the same time as everybody else.
• 32:22
  SPEAKER_00: Um it hopefully doesn't happen anymore, but I I can tell you that there were senior policymakers in a number of economies in Asia who had, you know, they communicated to the market through a private WhatsApp chat room.
• 32:36
  SPEAKER_00: So they had a dozen journalists or investors on their phone, and they wanted to get word out to the market about how they were thinking about maybe changing policy, they were just WhatsApp everybody.
• 32:47
  SPEAKER_00: It was very efficient for them, but completely excludes everybody that's not in their phone's uh contact list.
• 32:54
  SPEAKER_00: Um, and that I think is what makes investing in Asia really challenging is that you sort of have to assume that for an awful lot of the markets, the companies, uh, central bank decisions, ministry of finance decisions, that you're gonna be the last to find out.
• 33:10
  SPEAKER_00: So you you you need to invest, I think, on the basis that I'm protected.
• 33:15
  SPEAKER_00: I I have a view on what I think they are probably going to do, but I understand that every once in a while they're gonna do something that I didn't anticipate.
• 33:23
  SPEAKER_00: Uh, and then I find out that the locals sort of all knew that was gonna happen, and that's life investing in emerging markets.
• 33:30
  SPEAKER_01: So, how does that apply to you?
• 33:32
  SPEAKER_01: Um, since you're you like to focus on Asia, do you feel like you have an edge there?
• 33:39
  SPEAKER_01: Do you go to Asia, or do you feel like you're kind of always a step behind?
• 33:44
  SPEAKER_00: Even when I lived in Hong Kong and I traveled two or three days a week for 25 years, um, I always felt you know, I just I'm not a local in any of those countries.
• 33:56
  SPEAKER_00: Uh I had people that worked for me, we had traders in all of these markets, and I tried to stay as plugged in as I could.
• 34:03
  SPEAKER_00: And that was an important part of working for a bank: having that network of people where if you really wanted to know what the central bank was thinking, I could call up the senior trader and they might tell me.
• 34:16
  SPEAKER_00: Um and once in a while I would say, Well, that's very different from what I would be thinking if I were in their shoes.
• 34:23
  SPEAKER_00: Um, the way the way I handle that, to be honest, is to focus on a time frame that is not at so short term that it's dependent on me being on the contacts list of the central bank government.
• 34:37
  SPEAKER_00: Um, so you know, when we get down to a week or two before, or a week, say, before a central bank meeting, or some time frame like that, where I think policymakers have probably made up their minds.
• 34:51
  SPEAKER_00: They're not going to give me any heads up, but they might be giving people locally a nudge nudge wink wink.
• 34:58
  SPEAKER_00: So if I just focus on, you know, I'll tell you the way I would describe it to our clients was I will tell you what in 12 months' time everybody else will be telling you about the next year in each of these countries.
• 35:13
  SPEAKER_00: I mean, I I will tell you, I'll give you my view on what's going to happen next week, but you're probably, to be honest, better off talking to our head trader because he knows the governor or the minister of finance or he knows the treasurer at a company that's about to make a big big announcement.
• 35:29
  SPEAKER_00: Um, so I my my focus was gen generally where are we in the business cycle?
• 35:36
  SPEAKER_00: Um, in six to nine months' time, everybody's all of a sudden going to start getting bullish because we're currently in a downturn and everybody's bearish, but I think in a year's time things are gonna look a lot better.
• 35:49
  SPEAKER_00: So I would focus on that for most investors, a sort of medium to longer term, you know, the economy's gone into recession now, everybody's telling you it's terrible.
• 35:59
  SPEAKER_00: Uh, you're on the phone every day to the central bank governor.
• 36:02
  SPEAKER_00: Fine, I get that, and I can tell you how I would be behaving if I were them, and I go and talk to the central bank as often as I can to try to check my biases with them.
• 36:12
  SPEAKER_00: Um but I would always start, I would always start my presentations with you know, this is the way the world is going to look in 12 months.
• 36:20
  SPEAKER_00: In 12 months, growth is going to be rising, central banks are going to be tightening, ministries of finance are going to be pulling back on that stimulus, profits are going to be rising.
• 36:29
  SPEAKER_00: Um and that's how I would get around the fact that if the central bank governor wanted to signal that the market was positioned the wrong way and he didn't want to blow up the market the next week when he had to raise interest rates, or he wanted to sneak that out to a few people and get people changing their positions, and that happened.
• 36:49
  SPEAKER_00: Um then the fact that I'm not getting that message uh means that I, you know, I leave that to the locals, um, and and I will just, as I said, I focus on something a little bit longer term that isn't dependent on anybody's uh sort of short-term decision making.
• 37:07
  SPEAKER_01: So you lived in Hong Kong, you said, I think?
• 37:10
  SPEAKER_00: Yeah, I lived in Hong Kong for 25 years.
• 37:12
  SPEAKER_00: And when if you live in Hong Kong and you work for something other than just a very Hong Kong-focused company, that means you spend you know a third of your life on an airplane.
• 37:21
  SPEAKER_01: That's uh pretty ridiculous if you think about it.
• 37:25
  SPEAKER_00: It was actually it was uh a wonderful it was a wonderful job.
• 37:30
  SPEAKER_01: So you live there with your family?
• 37:32
  SPEAKER_00: Yes.
• 37:33
  SPEAKER_01: So I think many of our readers and listeners would love to know more on that, uh, perhaps on differences.
• 37:40
  SPEAKER_01: I mean, differences compared to Western markets.
• 37:44
  SPEAKER_01: How do you think Asian markets differ economically and culturally from Western markets?
• 37:52
  SPEAKER_01: Is an Asian consumer really that different from a Western consumer?
• 37:57
  SPEAKER_00: No, I don't think so.
• 37:58
  SPEAKER_00: And in fact, um, you know, for most of the time I was there, um, you would say that, you know, for example, Western brands were the premium brands.
• 38:07
  SPEAKER_00: Um, it it did get to the point which was quite you know ridiculous.
• 38:12
  SPEAKER_00: You could go to any sort of capital city in Asia except, I would say, in India, and you'd find a Starbucks on the corner, you'd find a gap around the corner.
• 38:20
  SPEAKER_00: I mean, so you had American brands everywhere.
• 38:23
  SPEAKER_00: Um, in the manufacturing space, European products were, I mean, there's no question.
• 38:28
  SPEAKER_00: If you needed to buy machine tools, you bought German machine tools.
• 38:32
  SPEAKER_00: That changed that that sort of mentality changed, I think, by about sort of 2014-15.
• 38:40
  SPEAKER_00: Really, the the what the Americans like to call the global financial crisis, I would say is maybe an Atlantic financial crisis in 2007 to 2009.
• 38:50
  SPEAKER_00: Um, that really changed attitudes in Asia.
• 38:54
  SPEAKER_00: And and one thing the consumers saw coming out of that was all of a sudden Asian companies that had been making you know shoes or anything, you know, mobile phones or whatever, for American companies under their brands started to sell products under their own brands.
• 39:12
  SPEAKER_00: And it created a real awareness that there were Asian brands that were in many respects better than you know an iPhone.
• 39:19
  SPEAKER_00: Um and that, you know, so for the first 15 years I was in Asia, the the height of luxury was to buy a Western brand.
• 39:29
  SPEAKER_00: After 2009, that progressively changed.
• 39:33
  SPEAKER_00: There was a growing sense in Asia on the part of consumers that we get better products.
• 39:39
  SPEAKER_00: Uh, if you look at um apps, you know, sort of mobile gaming, it's an Asian invention.
• 39:46
  SPEAKER_00: Um uh you look at what uh Elon Musk says he would like to do with X, you know, putting finance into it and creating, you know, using X as an ecosystem for you to live your life on, as opposed to simply a source of information and maybe messaging.
• 40:07
  SPEAKER_00: Uh what he's really saying is I want it to be like WeChat and Alipay.
• 40:13
  SPEAKER_00: I mean, you go to China and I mean you spent your your entire life is intermediated through your phone.
• 40:19
  SPEAKER_00: Everything you want to do is on your phone.
• 40:22
  SPEAKER_00: Finance, movie tickets, holidays, restaurants, everything is on your phone.
• 40:27
  SPEAKER_00: It's unbelievable from an American-European perspective, unless you've seen it, you just can't imagine.
• 40:34
  SPEAKER_00: And and that is pervasive now in Asia.
• 40:38
  SPEAKER_00: Um, so what that has done in the last few years, it's created an expectation in Asia that you know, when you when you roll out a product to a consumer, it's got to be a very sophisticated product.
• 40:49
  SPEAKER_00: I I find when when Asian people and people from Hong Kong or Philippines or whatever come to North America, they are they are surprised at how backward technologically this part of the world and and Europe, I would submit, even more so is compared to what they what they get.
• 41:05
  SPEAKER_00: But they're fundamentally the same people, they just want to get the cheapest product, the best product, you know, for the best price.
• 41:11
  SPEAKER_00: Um what is interesting about how markets behave in Asia, and this I think will, I mean, it's already to some extent um changing, is you know, every morning meeting in every bank and asset manager in Asia starts with the SP 500 and the US Treasury yield.
• 41:32
  SPEAKER_00: What happened overnight?
• 41:34
  SPEAKER_00: And it's not just because that's you know 12 hours where we were otherwise occupied or asleep, it's because equity markets in Asia through the 1990s and early 2000s were simply high beta representations of the SP.
• 41:49
  SPEAKER_00: If the SP went up 20 basis points yesterday, uh Asia would be up 2.4%, and every market would do the same.
• 41:57
  SPEAKER_00: We simply went up and down with the SP.
• 42:00
  SPEAKER_00: Why?
• 42:00
  SPEAKER_00: Because exports were largely driven ultimately by growth and demand in the United States, and so you had profit cycles that were the same as the American profit cycle.
• 42:10
  SPEAKER_00: Equity markets essentially priced that in.
• 42:13
  SPEAKER_00: But because the export sector was so dominant in these economies, if exports suddenly get are expected to get weaker, you really sell everything.
• 42:22
  SPEAKER_00: So we had a beta greater than one.
• 42:25
  SPEAKER_00: We were, as I say, a high beta representation of the US.
• 42:29
  SPEAKER_00: If you look at fixed income markets, as capital controls were taken off, bond yields in Asia became more and more and more positively correlated with the US Treasury.
• 42:40
  SPEAKER_00: So when you look at Asia from the perspective of an investor, if you really want to get diversification and tap into real Asian growth, you have to understand that the broad market is going to do what the US market does.
• 42:57
  SPEAKER_00: Now, over time, and given what we were saying earlier about how Trump is potentially separating the US from the rest of the world, over time that will change.
• 43:08
  SPEAKER_00: And today correlations are generally positive, but the beta is no longer greater than one.
• 43:14
  SPEAKER_00: Um, but that's that's a sort of I think you know, from an Asian perspective, the the problem is our capital markets behave like the US capital market, but the US is over time becoming a less and less important driver of our economies.
• 43:32
  SPEAKER_00: And how do we get away from that?
• 43:33
  SPEAKER_00: So, as I said earlier, if you look today, I mean, in in Thailand and Indonesia, the equity markets over the last five, seven years have really decoupled from the SP.
• 43:43
  SPEAKER_00: Other markets still tend to move up and down.
• 43:46
  SPEAKER_00: And you look at fixed income markets, with the exception of the high yielders in Asia, essentially we have an Asian bond market that replicates the US bond market.
• 43:56
  SPEAKER_00: So we have this diversity of economies.
• 44:00
  SPEAKER_00: Enemies, but when you look at the region from the capital markets' perspective, it looks very familiar if you're an American.
• 44:06
  SPEAKER_01: When I say the United States, we all agree that's a country.
• 44:10
  SPEAKER_01: And we talk about the Canadian stock market, we all agree that's a country.
• 44:14
  SPEAKER_01: But when we talk to investors and they usually talk about Asia or Europe as it is, as they were both one country.
• 44:22
  SPEAKER_01: Do you believe that investing in Asia is generally quite similar?
• 44:27
  SPEAKER_01: Do you or do you believe that each country should be understood independently before you can invest there?
• 44:35
  SPEAKER_00: There are always going to be country-specific factors that will impinge on your investments.
• 44:42
  SPEAKER_00: Um, so I I I think you know, if you're constructing a portfolio for Asia, I I would I would look at it from the perspective of if I want to be overweight the Asian consumer, I've got possibilities in China, Japan, Indonesia in particular.
• 44:57
  SPEAKER_00: I mean, it's the most populous country in Asia other than China and India.
• 45:02
  SPEAKER_00: 300, well, they don't even know how many people there are.
• 45:06
  SPEAKER_00: So there are I I think it doesn't make a lot of sense to say I'm going to be overweight Indonesia versus Malaysia, or Malaysia versus Thailand, because the business cycles for these economies are so similar.
• 45:21
  SPEAKER_00: But you can get access to really interesting consumer plays in China, India, and Indonesia.
• 45:29
  SPEAKER_00: Whereas, to be honest, from an outside-in perspective, if you're looking at the consumer in Singapore, that's interesting, but there's not many of them.
• 45:38
  SPEAKER_00: So it it's it's it's there there are ways to construct portfolios across the region that to me make more sense when you look at sectorally rather than I need to be overweight this country, particularly when you have equity markets that may be dominated by a particular sector.
• 45:56
  SPEAKER_01: I think what I mean, I feel pretty comfortable investing in South Korea, I feel pretty good investing in India, maybe even Taiwan, but I don't really feel comfortable investing in China.
• 46:10
  SPEAKER_01: So I think my question is more that as an investor, should you understand how investor-friendly it is in a way?
• 46:17
  SPEAKER_01: And because my question was about how do you trust the country?
• 46:22
  SPEAKER_01: Do you trust the the government of the country you invest in, is kind of what I'm saying.
• 46:27
  SPEAKER_00: And you absolutely have to.
• 46:28
  SPEAKER_00: Anytime you're investing outside your country, um, and and you know, sadly, I guess that's a question we now have to start asking ourselves about the US.
• 46:36
  SPEAKER_00: So you talk about China, absolutely.
• 46:38
  SPEAKER_00: I mean, there it was um, you know, not so long ago, it was fashionable to say that China was uninvestable because people thought that the government uh would not allow private investors, domestic or foreign, um, to make money in the stock market or to make money as an investor uh in real physical capital.
• 47:01
  SPEAKER_00: Um, so you you definitely need to have that that comfort level.
• 47:05
  SPEAKER_00: Now, China adds an uh an additional complexity in that there are genuine generally for a foreign investor, you're going to invest in China through Hong Kong.
• 47:19
  SPEAKER_00: Um uh so you have the North-South Stock Connect and Bond Connect and Wealth Management Connect.
• 47:25
  SPEAKER_00: And they're the the because China likes to believe it has capital controls, or it does have a capital controls, except in in some respects they're not really effective.
• 47:36
  SPEAKER_00: But what they like to do is they set up routes for foreign investors in and out of the country that where they have either a quota or they certainly have visibility and they can if they want to close the taps or open the taps.
• 47:52
  SPEAKER_00: They're not alone in trying to do that, um, but they're probably more effective than than most other governments.
• 48:00
  SPEAKER_00: So, yeah, if you're gonna invest in you know an A-share in China, which is the onshore equity market, um, you need to be comfortable that the government's not going to suddenly close the door to capital outflows.
• 48:14
  SPEAKER_00: And that uninvestable thesis a few years ago came about because the currency came under some pressure, and for a few weeks it was very difficult to get your money out of China.
• 48:25
  SPEAKER_00: In fact, for a few months it was very difficult to get your money out of China.
• 48:29
  SPEAKER_00: So you you invest in emerging markets, particularly a country like China, you invest with uh an understanding that it may turn out that that investment gets trapped.
• 48:42
  SPEAKER_00: Maybe not permanently, but you may find that you know you want to sell and you can't get your money out, and that situation may last days, weeks, months, years.
• 48:52
  SPEAKER_00: Um and and you know, China's not alone in that, but generally other countries in Asia who have imposed sort of, if you will, ex post capital controls uh learned that that really was not helpful and have avoided it.
• 49:10
  SPEAKER_00: So, you know, I think of Malaysia and the Philippines at different times, and while I was in Asia, had engaged in that or at least led people to suspect that if the market sold off, they might find that they couldn't get their money out.
• 49:24
  SPEAKER_00: And and they, you know, by the mid-2000s, they were routinely pushing back when anybody suggested that they might reintroduce capital controls.
• 49:33
  SPEAKER_00: Um, because they they they learned the lesson.
• 49:35
  SPEAKER_00: If you as Malaysia did, if you close the door and don't allow investors to leave, you're not getting any money in.
• 49:43
  SPEAKER_00: And then when you do eventually open the door and let people out, they leave and they don't come back in a hurry.
• 49:48
  SPEAKER_00: So you you may have bought yourself some stability in the FX market in the very near term, but at a real cost to your credibility.
• 49:57
  SPEAKER_00: Um it's been a long time since China has well long time, I'm saying, you know, we're you know, many months, probably more than you know, a couple of years since China has really interfered with people trying to get the money out of the country.
• 50:12
  SPEAKER_00: It's not as straightforward as it is in other countries, but generally speaking, if you sell an asset onshore, you can make your application take the money out, and you can get your money out.
• 50:23
  SPEAKER_00: But if the currency would suddenly depreciate, you know, a few percent, you may find it takes an extra day or two or three.
• 50:31
  SPEAKER_01: During your time in um Hong Kong and Asia, I can imagine you traveled to other places as well inside Asia.
• 50:40
  SPEAKER_01: What were some of the things you were most surprised by at the time?
• 50:44
  SPEAKER_01: Is it because um I haven't been to Asia yet, but from the many different um people I talked to and from several um guests we've had, I I hear that, for example, the technological innovation there is much more advanced than many of us assume.
• 51:05
  SPEAKER_01: So I'm just curious on your time there, or perhaps even from what you know now, what are some of the things you were most surprised by?
• 51:14
  SPEAKER_00: I I would say that when I was first there, uh so I started traveling to that part of the world when I was at the IMF, so it was 1992, I think.
• 51:26
  SPEAKER_00: Three was my first trip.
• 51:29
  SPEAKER_00: And you know, even then, this was uh slightly early days into sort of communications technology, computers and mobile phones, they they were uh emerging from the region, and and Asia was already dominant in that space.
• 51:46
  SPEAKER_00: But um by and large, Asia was producing these goods for export and not consuming them themselves.
• 51:53
  SPEAKER_00: And um the there were folks at the World Bank and elsewhere who went deeply down a rabbit hole on what they call the complexity of Asian manufacturing, and they were saying, look, they're producing goods that are far too complex for the relatively modest incomes of Asian consumers.
• 52:11
  SPEAKER_00: And my response at the time, and this is you know, we're going back 25, 30 years, was yes, because they're not making for Asian consumers, they're making for Americans and Europeans.
• 52:20
  SPEAKER_00: Um, and I remember that really struck me uh was uh driving back out to the airport in Taiwan, and of course, you know, TSMC, UMC, it's it's if you will, Taiwan is, as we say, the Saudi Arabia for technology.
• 52:36
  SPEAKER_00: Um, and you drive along a toll road out to the airport, and the and the taxi driver is getting a piece of paper from one toll booth and then handing over a piece of paper with a banknote to the next toll booth and getting another piece of paper.
• 52:47
  SPEAKER_00: And I thought, this is crazy.
• 52:48
  SPEAKER_00: I mean, as I said, it's you know, this is the the center of the ICT revolution, and you're still collecting tolls with pieces of paper on you know a six-lane highway.
• 53:00
  SPEAKER_00: Uh, and that really brought home uh this this reality that Asia was producing the most technologically advanced products in the world, but not consuming them.
• 53:11
  SPEAKER_00: Uh, and now, as I said earlier, it it's completely reversed.
• 53:15
  SPEAKER_00: Uh, Asian consumers have access to technology that folks in the West um could only dream of or fear, to be honest.
• 53:25
  SPEAKER_00: I mean, I if I tell if I show somebody my my you know the the the 10 cent app on my Hong Kong phone, they're slightly horrified that you know that they they know all that about you.
• 53:38
  SPEAKER_00: And the answer is yeah.
• 53:39
  SPEAKER_00: I mean, I do I trust them?
• 53:41
  SPEAKER_00: Not necessarily, but it is so convenient that I'm willing to recognize that I I give up a considerable amount of privacy for the for the for the luxury of of basically managing my life on my phone.
• 53:56
  SPEAKER_00: Um and I'm I'm convinced that you know this will come to the rest of the world because it is so efficient and convenient, uh, and people I think will respond positively as as it becomes more available.
• 54:10
  SPEAKER_00: But as I said, for an average mainland Chinese person coming to North America must be horrified at how backward technology is in this part of the world.
• 54:19
  SPEAKER_01: Yeah, that's funny to think about.
• 54:21
  SPEAKER_01: China is such a weird country, it it's a huge success story.
• 54:26
  SPEAKER_01: I mean, they went from a country that started as basically a third world country to one of the leaders in today's world.
• 54:34
  SPEAKER_01: Uh, perhaps even the leader if the United States continues on its path.
• 54:40
  SPEAKER_01: But at the same time, it's uh it's it's a combination of an autocratic, socialistic, capitalistic country.
• 54:49
  SPEAKER_01: What's your view on investing in China long term?
• 54:53
  SPEAKER_01: Do you think it will get better or do you think it will get worse for investors?
• 54:58
  SPEAKER_00: I I I'm I'm still very positive on China in the sort of medium to long term.
• 55:05
  SPEAKER_00: I I think the I guess there's there's broadly two things I would say about China that one that sort of speaks to maybe an error in how people think about China.
• 55:18
  SPEAKER_00: It it's a little bit less prevalent today, but generally there's a perspective that says China is so different that I'm never going to understand it, and therefore it's sort of uninvestable.
• 55:30
  SPEAKER_00: When you look at how how the economy functions, how the financial system functions, how the capital markets function, it's very similar to the rest of the world.
• 55:40
  SPEAKER_00: Uh, I mean the Chinese growth miracle was no mystery.
• 55:44
  SPEAKER_00: You take a third of your population that lives in cities and you grant them their apartments and then allow them to buy and sell apartments.
• 55:53
  SPEAKER_00: You you create property rights and then you create a market for those property rights.
• 55:57
  SPEAKER_00: It was probably the single biggest wealth transfer the world has ever seen.
• 56:03
  SPEAKER_00: It's no surprise that the economy is going to take off.
• 56:07
  SPEAKER_00: And then you go to the two-thirds of the population that lives in the countryside and say, we'll do the same thing for the asset that matters most to you, which is the land.
• 56:15
  SPEAKER_00: We'll give you more of the property rights to the yield from the land.
• 56:18
  SPEAKER_00: You can start selling your product however you want to in the cities or whatever, create new markets.
• 56:24
  SPEAKER_00: You want to set up shop and you know, you know, light manufacturing industry.
• 56:29
  SPEAKER_00: Go ahead.
• 56:30
  SPEAKER_00: And and so it it from an economics perspective, it was very it's very understandable how China has evolved.
• 56:41
  SPEAKER_00: From time to time, politics has impinged on that, which happens in advanced economies too.
• 56:48
  SPEAKER_00: From time to time, politics impinges on the US, as we're seeing today in Europe.
• 56:52
  SPEAKER_00: Uh, you know, 10-12 years ago you had a sovereign debt crisis in Europe.
• 56:57
  SPEAKER_00: Um, that certainly impinged on how investors looked at investment prospects within the EU.
• 57:03
  SPEAKER_00: Um, so that's the first thing I would say is that when somebody says China is is so alien and so different that that that it's not, I can't invest in it, 90% of what goes on in China is entirely rational economically.
• 57:19
  SPEAKER_00: What has been a problem for the last 10 years is that you have a central government in China that is no longer deliberately trying to stimulate faster growth.
• 57:32
  SPEAKER_00: Uh, Xi Jinping's interests are not perfectly aligned with investors' interests the way they were under his predecessors.
• 57:40
  SPEAKER_00: He's he took office at a time when the party was in disrepute, corruption was rampant, it was not functioning properly, and there was real concern that the party's legitimacy and its uh ability to govern China was at risk.
• 57:58
  SPEAKER_00: And he is still more motivated by those considerations than trying to get GDP growth up.
• 58:06
  SPEAKER_00: Uh when the economy gets a knock and things look like they're getting worse, the system, the government, the central bank, the regulators do respond, but they're responding in a way to sort of put a floor on growth.
• 58:22
  SPEAKER_00: So investors have for years been waiting for this magical big fiscal stimulus that's going to bail them out.
• 58:28
  SPEAKER_00: It's not going to happen.
• 58:29
  SPEAKER_00: In the same way that the central bank, I mean, a 10-basis point rate cut a few weeks ago, eight months after the previous 20-basis point rate cut, they are not trying to stimulate faster growth in China.
• 58:42
  SPEAKER_00: They're just trying to keep things stable while the real energy of the government goes into encouraging investments in new technologies, encouraging the adoption of new technologies, trying to maintain markets for exports.
• 58:58
  SPEAKER_00: All the stuff that governments in the rest of the world say they want to do, China is doing, and they're doing more effectively.
• 59:06
  SPEAKER_00: So the reason I'm positive on China in the medium and long run is that eventually those investments in new technologies will pay off.
• 59:16
  SPEAKER_00: And, you know, you can find anecdotes today that say it's already happening.
• 59:20
  SPEAKER_00: I mean, there are there are many examples today where these investments are starting to really deliver profitability and growth.
• 59:28
  SPEAKER_00: But for an economy that big, it's going to take some more years.
• 59:33
  SPEAKER_00: And that is, you know, the respect the respects in which China is different is really twofold.
• 59:40
  SPEAKER_00: One is the government now no longer worries about a threat to its ability to govern the country.
• 59:46
  SPEAKER_00: So they can take a longer term perspective, be less focused on goosing growth in the short term, more focused on the medium-term productivity growth story, and that's delivering.
• 59:56
  SPEAKER_00: And I'm convinced that over the next few years and for the following couple of decades, you're going to see growth in China pick up relative to the current view that it slows down inexorably towards 2% in 20 years.
• 1:00:10
  SPEAKER_00: I think the economy is going to surprise to the upside.
• 1:00:13
  SPEAKER_00: Despite a shrinking workforce, growth will surprise to the upside as these technological innovations, new sources of energy, new materials, new equipment, new technologies deliver growth in China in a way that the rest of the world wishes they could get for themselves.
• 1:00:29
  SPEAKER_00: But governments keep getting diverted to shorter-term considerations just for the purpose of staying in office.
• 1:00:38
  SPEAKER_00: So I am I am positive on China in the medium and long term for that reason, that they have the luxury of investing in these technologies that every country in the world says they want to, but China is more than anybody else.
• 1:00:54
  SPEAKER_00: And I think that will pay off.
• 1:00:55
  SPEAKER_00: If you're a technological optimist, the way you want to express that is China more than just about anywhere else.
• 1:01:02
  SPEAKER_00: The other part of the Asia story that I'm bullish on still is India for essentially a very similar reason.
• 1:01:08
  SPEAKER_00: India is the last big country in the world that has a positive demographic dividend, a working age population that is growing as a share of the population, uh, and and will continue so for probably another decade.
• 1:01:22
  SPEAKER_00: Um, they're making real progress in what they call process reform in India.
• 1:01:28
  SPEAKER_00: I mean, the complaint about India was it took forever for anything to happen.
• 1:01:32
  SPEAKER_00: You wanted to buy some property, it could take years.
• 1:01:37
  SPEAKER_00: If you had a commercial dispute, it could take decades to resolve.
• 1:01:40
  SPEAKER_00: If you had to deal with the government, it would take ages for anything to happen.
• 1:01:43
  SPEAKER_00: And then the government, when it tried to send transfers to poor households, you know, a big chunk of that would get stolen.
• 1:01:51
  SPEAKER_00: Uh now what you have is you have, if you if you if you think about the digitalization of um households around the world, uh, this is an India and China story.
• 1:02:03
  SPEAKER_00: So in India, you have these biometric ID cards that allow people to go and open bank accounts.
• 1:02:08
  SPEAKER_00: In fact, you don't even need to go to the bank anymore, you just open the account on your phone.
• 1:02:13
  SPEAKER_00: The government can then deliver services directly to you without a middleman there potentially taking their 10% off the top.
• 1:02:21
  SPEAKER_00: Um, they're improving processes within government, making courts more efficient, making government bureaucracies more efficient, trying to streamline investment approvals processes.
• 1:02:32
  SPEAKER_00: All of these things that gradually, little by little, because it is India still, little by little make it a more investable place.
• 1:02:41
  SPEAKER_00: It is the only country in the world that really properly could rival China as a manufacturing base.
• 1:02:47
  SPEAKER_00: And you see that Apple has made that shift and now they're getting beaten up by Donald Trump for doing what is perfectly rational.
• 1:02:56
  SPEAKER_00: If Chinese labor is getting too expensive, I can move to India where I've got this enormous labor pool, much cheaper, uh, and I can replicate the miracle that I saw in China from the 1990s through the 2000s.
• 1:03:11
  SPEAKER_00: You could potentially replicate that in India.
• 1:03:14
  SPEAKER_00: Um, probably to be honest, you're not going to get two decades of 10% GDP growth.
• 1:03:20
  SPEAKER_00: But I'm very positive on India because what happened in China is very understandable as an economic dynamic, and I can see the potential for that to play out in India.
• 1:03:30
  SPEAKER_01: So India and China are two countries to to to watch.
• 1:03:36
  SPEAKER_01: Any others?
• 1:03:37
  SPEAKER_00: I think you want to be I think you want to be long, both those countries on a on a medium to long-term view.
• 1:03:44
  SPEAKER_00: So you know, you buy them and you know you may get some knocks over the next you know 12-18 months, but valuations look very cheap, particularly in in China where nobody's invested.
• 1:03:57
  SPEAKER_00: Um but the medium-long term for both those countries look very positive.
• 1:04:01
  SPEAKER_00: I remain and genuine generally for the last 20 years have been much more worried about the ASEAN region because they are not by and large, they don't own the technology, they've simply been a very um supportive place for foreign companies to make things, um, and that there is either no longer the need for that, or if you're Donald Trump, you simply don't want to allow that.
• 1:04:30
  SPEAKER_00: So ASEAN needs to reinvent itself, which is a challenge when you've got 30% of GDP coming from manufacturing, which is mostly intermediate goods rather than final goods.
• 1:04:42
  SPEAKER_00: So you've got an enormous capital stock that needs essentially to be written off before you can get new investments in something that may make sense.
• 1:04:52
  SPEAKER_00: If you have an industry that is sized for the world, you make all of the world's hard drives in Thailand, and all of a sudden that industry needs to go, you can't seem to turn around and say, well, we'll just make them for ties.
• 1:05:07
  SPEAKER_00: Firstly, you're not making something that consumers buy.
• 1:05:10
  SPEAKER_00: Secondly, you you've been making hard drives for the world, not for the you know, this much smaller entity we call Thailand.
• 1:05:18
  SPEAKER_00: So that's the real challenge for the ASEAN region, is they have these enormous successful export industries that have captured economies of scale for the globe.
• 1:05:29
  SPEAKER_00: You can't simply turn that around to say, well, now you're gonna make stuff for Filipinos or Indonesians or Thai's.
• 1:05:35
  SPEAKER_00: You've got to, you know, if that industry is gonna leave and Trump gets his way and it goes to the United States, you're gonna replace it with something that's much, much smaller, which means you're laying off millions of people, you're destroying investment capital before you can reinvest.
• 1:05:52
  SPEAKER_00: And that's gonna be a very painful process for ASEAN.
• 1:05:56
  SPEAKER_00: Now, the way they are positively responding is to saying, look, we Got to become much more integrated.
• 1:06:02
  SPEAKER_00: So, ASEAN free trade.
• 1:06:04
  SPEAKER_00: I mean, they've finalized that, I think, in 2015.
• 1:06:07
  SPEAKER_00: It's still a bit more aspirational than it should be.
• 1:06:11
  SPEAKER_00: But the answer is, you know, if we look at ASEAN as an as a combined economy, it starts to look a lot more the economies of scale are a lot more impressive than if I'm just looking at Malaysia separately from Thailand, from Indonesia or Philippines.
• 1:06:26
  SPEAKER_00: Um, so that's the future for for ASEAN is to really deliver on that promise to create a common market within these countries.
• 1:06:36
  SPEAKER_00: You're still going to have manufacturing sectors that are too big because you're a few million people, not a few billion, sorry, you're a billion people.
• 1:06:47
  SPEAKER_00: Um, but you can uh you can at least make some progress to to limit the the downside, the downsizing that's going to be required if Trump gets his way.
• 1:06:59
  SPEAKER_00: What they're hoping, to be honest, is that Trump disappears and we go back to business as usual before.
• 1:07:05
  SPEAKER_01: So let me give you some pushback on what you just said.
• 1:07:08
  SPEAKER_01: Um I don't like being a yes man, so sometimes I like to take the uh the opposite stance.
• 1:07:13
  SPEAKER_01: Sure.
• 1:07:13
  SPEAKER_01: So, yes, China specifically has grown immensely over the past few decades, but that hasn't really translated into profits for investors through the equity markets.
• 1:07:28
  SPEAKER_01: I think a lot of global investors are wrestling with the fact with the underperformance of Asian markets, especially when you compare them to European or US markets over the past decade, uh, say the SP 500 or the Nasdaq.
• 1:07:43
  SPEAKER_01: So GDP growth or a growing population doesn't necessarily mean a good stock market.
• 1:07:50
  SPEAKER_01: I think most of that comes from the fact that the US used to be the most trustworthy and growing market, especially tech-wise.
• 1:08:00
  SPEAKER_01: But that does lead me to my question.
• 1:08:02
  SPEAKER_01: Well, the answer for the over the past decade was it's not worth investing in Asia.
• 1:08:06
  SPEAKER_01: If you knew the if you knew this 10 years ago, it was probably better to invest in the United States.
• 1:08:12
  SPEAKER_01: So, do you think it is worth investing in China and Asia today?
• 1:08:17
  SPEAKER_01: Do you think this will be a better decade for uh Asian equities?
• 1:08:23
  SPEAKER_00: So you're right that over the last sort of 10 uh years or 10 or 12 years, um, Asia has at the index level underperformed.
• 1:08:32
  SPEAKER_00: And there are a couple of things going on.
• 1:08:34
  SPEAKER_00: One is uh we have what we call now, I guess, the Magnificent Seven in the United States.
• 1:08:40
  SPEAKER_00: Um these large megacap technology stocks that really nobody else has.
• 1:08:46
  SPEAKER_00: I mean, China has lots of successful technology companies, but they um they haven't delivered, to be honest, the kind of returns to shareholders that the Apple and Microsoft and Google and uh their their peers in the US have.
• 1:09:02
  SPEAKER_00: But also they haven't been as big a part of the index.
• 1:09:05
  SPEAKER_00: So, I mean, at this point, what the those seven megacap stocks are almost a quarter of the SP.
• 1:09:11
  SPEAKER_00: Uh a quarter, sorry, quarter, almost a quarter more.
• 1:09:13
  SPEAKER_00: Yeah, a quarter of the SP.
• 1:09:14
  SPEAKER_00: Um, so their counterparts in China haven't dominated the index to the same extent.
• 1:09:20
  SPEAKER_00: So part of the Asian underperformance is US exceptionalism, as we have been calling it until maybe now.
• 1:09:27
  SPEAKER_00: Um, and for the same reason that Europe has hugely underperformed the SP over the same time period.
• 1:09:33
  SPEAKER_00: Um the second part is, yeah, to some extent, you know, if you're investing in China, you're doing that by buying Zeemans.
• 1:09:40
  SPEAKER_00: European companies that invested in in China to become more profitable.
• 1:09:46
  SPEAKER_00: I mean, if you're if you're investing in an export-oriented activity in China, then by definition, I mean you're not going to be you're not going to be buying a Chinese company for that.
• 1:09:54
  SPEAKER_00: You're going to chine, you're going to buy the the BMWs and the BSFs and the Zeemans and European companies that have taken advantage of that export platform in China.
• 1:10:04
  SPEAKER_00: Uh Apple, to a great extent, right?
• 1:10:07
  SPEAKER_00: Um, and then the the the genuinely Chinese part of this underperformance is really twofold.
• 1:10:15
  SPEAKER_00: One, just in very recent years, you had another property cycle that has been more protracted than past cycles and almost entirely deliberately.
• 1:10:26
  SPEAKER_00: So when I said earlier that Xi Jinping isn't really concerned about goosing growth in the short term, he actually created this property downturn.
• 1:10:35
  SPEAKER_00: I mean, in the middle of a pandemic, he decided to impose binding financial constraints on the biggest property developers in the country.
• 1:10:43
  SPEAKER_00: At a time when they were struggling to sell property because people weren't allowed to leave their apartments.
• 1:10:47
  SPEAKER_00: He suddenly said, Well, you've got to clean up your balance sheets.
• 1:10:51
  SPEAKER_00: Um, so this, you know, he created this.
• 1:10:55
  SPEAKER_00: Um, there are signs that the property market is beginning to bottom out.
• 1:10:59
  SPEAKER_00: If you look at tier one cities, as we call them in China, the top ten cities account for about a quarter of the population, and property prices there have been creeping higher over the last sort of seven to nine months.
• 1:11:10
  SPEAKER_00: Uh so that's one factor.
• 1:11:11
  SPEAKER_00: And then, secondly, a counterpart to not being so focused on goosing growth in the short term, is Xi Jinping has been more skeptical of the importance of supporting private enterprise.
• 1:11:23
  SPEAKER_00: And that was because he saw private companies being so um tied up with corrupt officials and corrupting officials that he needed to separate the party from the private sector.
• 1:11:39
  SPEAKER_00: Um, and when people in the private sector pushed back, he pushed back even harder.
• 1:11:44
  SPEAKER_00: So created, I think, more than a perception, a reality that the private sector for a number of years really was in the doghouse, as we might say.
• 1:11:54
  SPEAKER_00: Um he is now, you know, I would say over the last seven or eight months, he's trying to provide more reassurance that he cares about the private sector, recognizes the value of private companies and entrepreneurs to the out the future for China, recognizes their contribution to productivity growth and technological advancement.
• 1:12:16
  SPEAKER_00: If you're a private company in China, you will still be expected to support the government in ways that private companies and the rest of the world aren't required to.
• 1:12:27
  SPEAKER_00: Um, but I think that that sense that you know private capital in China was running scared, I think that's beginning to beginning to change since late last year.
• 1:12:37
  SPEAKER_00: Um so those two things I think there's a there's genuinely a Chinese aspect to underperformance.
• 1:12:43
  SPEAKER_00: Xi Jinping took office in 2012, and by 2013 you can see the Chinese market relative to the S ⁇ P was in decline, but there was an important US exceptionalism part to that as well.
• 1:12:56
  SPEAKER_00: So where are we today?
• 1:12:57
  SPEAKER_00: Then you think, well, what might change that underperformance?
• 1:13:01
  SPEAKER_00: Well, are the Magnificent Seven going to continue to outperform to the same extent?
• 1:13:06
  SPEAKER_00: Well, even Donald Trump's White House is continuing antitrust cases against some of those companies.
• 1:13:13
  SPEAKER_00: The European governments and other governments are looking to make sure that they are paying their fair share of taxes, however you wanted to find that.
• 1:13:21
  SPEAKER_00: You have antitrust cases against some of these companies in a number of countries.
• 1:13:25
  SPEAKER_00: So my bias would be that life for the Magnificent 7 over the next 10 years is going to be much less promising than it has been over the last 10 or 15 years.
• 1:13:36
  SPEAKER_00: Um, on the Chinese side, as I said, I you know you can look at the property market.
• 1:13:41
  SPEAKER_00: I would look at the property market and say things are certainly less bad, in some respects, genuinely getting better.
• 1:13:48
  SPEAKER_00: Um, don't expect the government to throw in a big fiscal or monetary stimulus.
• 1:13:53
  SPEAKER_00: They're just waiting for the market to adjust, and it looks like it has enough in some parts of the country.
• 1:14:00
  SPEAKER_00: And we wait for either Xi Jinping suddenly to get genuine religion on the private sector, or we have to wait for you know a replacement in due course.
• 1:14:11
  SPEAKER_00: Um hopefully we don't have to wait that long.
• 1:14:14
  SPEAKER_00: But you know, he's he's saying the right things, he's having his picture taken with the right people.
• 1:14:20
  SPEAKER_00: Um you know, the government is trying to communicate more positively around private investments.
• 1:14:26
  SPEAKER_00: Um we just have to wait and see that to happen.
• 1:14:30
  SPEAKER_00: But as I said earlier, I mean if I were to take a longer-term view, um, barring some really sort of uh low probability disastrous kind of events, I would expect that the investment climate in China improves over the next decade.
• 1:14:49
  SPEAKER_00: I I would expect to see these technological advances that they are making at least as fast, if not in many respects faster than the US and Europe, to pay off.
• 1:14:59
  SPEAKER_00: If only for investors, only for investors, but probably also I think even you'll see a genuine real economic return to these investments.
• 1:15:08
  SPEAKER_01: You answered my question before you even knew the question.
• 1:15:13
  SPEAKER_01: I was going to ask you what would I need to change to bring capital back to China and make it more investable, uh, so to say.
• 1:15:22
  SPEAKER_01: I I just checked the time and I'm I'm I'm generally enjoying our conversation.
• 1:15:26
  SPEAKER_01: It's been a good talk so far, and I'm I'm learning a lot of new things as well and getting some new insights, which is why I love doing this.
• 1:15:33
  SPEAKER_01: So how about we well thank you?
• 1:15:36
  SPEAKER_01: We work towards uh an ending.
• 1:15:39
  SPEAKER_01: I have I have like two more questions that I that just came up.
• 1:15:43
  SPEAKER_01: Um for those who are interested by Asia, uh, and I am one of them, and perhaps for those that don't really know where to start, what kind of advice would you would you give investors or um people interested in Asia, uh, or even you know, people that are interested in Asia and want to understand the the consumer, the markets, and uh find footing there?
• 1:16:12
  SPEAKER_01: What kind of advice would you would you give them?
• 1:16:15
  SPEAKER_00: The biggest obstacle is information.
• 1:16:17
  SPEAKER_00: Um because for most investors there are gonna be a language barrier.
• 1:16:23
  SPEAKER_00: Um certainly for me, there's a language barrier.
• 1:16:26
  SPEAKER_00: Um when you travel to every country in the region half a dozen times a year, you I can be polite in lots of languages, but not conversant in many of them.
• 1:16:36
  SPEAKER_00: Um so there are I think you need to uh to to find ways to try to get a local perspective on the news.
• 1:16:48
  SPEAKER_00: Um, and actually, Substack Now has a number of really useful blogs.
• 1:16:53
  SPEAKER_00: Um uh there's Fred Gao at I think it's called Inside China, uh China Banking News, uh the NPC Observer uh does a good job sort of keeping you informed and translating government documents.
• 1:17:09
  SPEAKER_00: Um there's actually uh uh a subtack.
• 1:17:12
  SPEAKER_00: Um uh Robert Wu has a subtack called China Translated.
• 1:17:17
  SPEAKER_00: Um so you can get over the the language barrier.
• 1:17:20
  SPEAKER_00: Uh Bill Bishop at Cynocism, also very useful.
• 1:17:23
  SPEAKER_01: Jeff Towson.
• 1:17:25
  SPEAKER_01: I I like him from the I'll have to look up the name, but Jeff Towson is uh like this uh he has this podcast on Asian technology companies, mostly China.
• 1:17:34
  SPEAKER_01: Right, very good as well, if you haven't heard of him.
• 1:17:37
  SPEAKER_00: Yeah, I have, I have.
• 1:17:39
  SPEAKER_00: So so the the first thing I think you need is um somebody who can do that translating for you, tell you what's going on, yeah, without relying to be honest on Wall Street Journal, New York Times, FT, or whatever, because they will come at it, particularly American news sources, will come at it from a particular slant.
• 1:17:56
  SPEAKER_01: Yeah.
• 1:17:57
  SPEAKER_00: Second thing, if you're looking at individual countries in Asia, uh, I do think you need access to analysts on those countries who are on the ground.
• 1:18:08
  SPEAKER_00: Um, so you know, you you may think you understand a certain technology, and you look at a country, a company that's listed in China, well they do that.
• 1:18:18
  SPEAKER_00: So, you know, I'm bullish on this, so I'll buy that.
• 1:18:21
  SPEAKER_00: The the to be honest, the unpublished nuance about so many companies in in Asia, in terms of what's their political risk that people don't talk about.
• 1:18:33
  SPEAKER_00: Are they in or out with the government?
• 1:18:34
  SPEAKER_00: And this is not just purely a China thing.
• 1:18:37
  SPEAKER_00: Um, so I I do think before you start buying, you know, putting a lot of money into stock in a particular company, you want to find an analyst who follows that company and has done for a few years at least, and at least be able to read their research reports, if not talk to them.
• 1:18:55
  SPEAKER_00: Um because almost invariably there's you know, if the if the stock looks like it's underperforming, there's probably a good reason for that, and it may be a reason that you know you've got to talk to the analyst in person to find out.
• 1:19:10
  SPEAKER_00: Um, so that's the that information barrier, I think, is the biggest barrier.
• 1:19:16
  SPEAKER_00: Otherwise, I mean I I would say you know, you you you buy a China mutual fund and just sit on it for the next 10 years and it's gonna outperform.
• 1:19:24
  SPEAKER_00: If you want to do better than that, or you're gonna tell you want to be more tactical, then then you need to talk to somebody who talks to those companies uh before making that investment.
• 1:19:34
  SPEAKER_00: And then outside China, there's you know, again on Substack, Mekong Memo is a is a great way to keep informed about for me is a great way to keep informed of what's going on in the ASEAN region in particular.
• 1:19:46
  SPEAKER_00: Uh so we're we're blessed on Substack with uh with a lot of really good resources.
• 1:19:52
  SPEAKER_00: Um most of my reading, to be honest, uh uh given you know where I come from, I I spend a lot of time reading academic papers because I am you know I I have a an idea about what's going on in some aspect of economic development or financial markets in these countries, and I want to see, you know, I want to read academic papers where people have actually put that to the test.
• 1:20:13
  SPEAKER_00: So I spend a lot of time on different central bank and economics department websites looking for research.
• 1:20:19
  SPEAKER_00: But in that, you know, if if if for investors, what I would say is the Peterson Institute on China US trade, the single best source there is, and uh the Rhodium Group, uh for big picture, big picture China US macro, particularly a lot of work they've done on one belt, one road and FDI flows between Europe, US, and China, they're outstanding.
• 1:20:45
  SPEAKER_01: I always like to end on the following question.
• 1:20:48
  SPEAKER_01: If you had to give one piece of advice to, well, in our case, long-term investors, which is our audience, um, trying to make sense of Asia, but also looking to perhaps invest in Asia today, um, next year, whatever it may be in the future, what would your best piece of advice be?
• 1:21:09
  SPEAKER_01: I think you kind of already told us that the you need to get like uh move to Hong Kong, need yeah, move to Hong Kong and follow the right sources.
• 1:21:18
  SPEAKER_01: Uh, but anything you would like to add, huh?
• 1:21:21
  SPEAKER_00: Move to Hong Kong.
• 1:21:22
  SPEAKER_00: No, I I it if you if you're if you want to invest in Asia and and that's gonna be the the biggest part of your job or your portfolio, um move to Hong Kong or Singapore.
• 1:21:35
  SPEAKER_00: But I I would say Hong Kong is it's a wonderful place, so convenient to everywhere in the region, and uh that's where all the analysts are.
• 1:21:44
  SPEAKER_01: And the food is uh pretty good, I've heard.
• 1:21:46
  SPEAKER_00: Food is outstanding.
• 1:21:47
  SPEAKER_01: Well, that's that's that's the only reason you should go already.
• 1:21:52
  SPEAKER_01: Uh Michael, I think uh you did a great job.
• 1:21:55
  SPEAKER_01: It was fantastic talking to you.
• 1:21:57
  SPEAKER_01: Thank you so much for sharing everything, uh, walking us through so many moving parts.
• 1:22:04
  SPEAKER_01: Asia is for many of us a far from my bet show, so this will definitely help many.
• 1:22:11
  SPEAKER_01: To our listeners, if you're not subscribed already, go check out Michael's newsletter, The Asia Economist on Substack.
• 1:22:18
  SPEAKER_01: I'll make sure to put it in the description and tag it in the uh wherever we'll post this.
• 1:22:24
  SPEAKER_01: And um, I think it's one of the best ways to stay informed on what's going on in Asia.
• 1:22:31
  SPEAKER_01: So, Michael, thanks again.
• 1:22:32
  SPEAKER_01: Thanks so much, Tim.
• 1:22:33
  SPEAKER_00: It's been great fun.
• 1:22:34
  SPEAKER_01: Awesome.
• 1:22:35
  SPEAKER_01: Talk to you later.