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00:00[CC may contain inaccuracies] And George you say for most of your mandates you remain pretty much fully invested. When do you still start feeling a little bit more comfortable with this market. Because until that point do we continue to just get the the drifting and the lack of conviction in any sell off and any rebound. Good questions of course for a fund manager just got to get comfortable being uncomfortable. The things we tried to be predicted the future earnings and we know that you know the valuations are much lower at the moment and they've gone from the S & P last year 22 times to now under its 10 year average under 16 times. And like what. And a lot of developed market equities. But why don't overgeneralize. It is there's a decent organization in monetary policy. Their economy is tightening for obvious reasons because of the inflation scare. And they've got good economic momentum before the slowdown. They've got good momentum before the slowdown. In aggregate household savings are high in North America and many developed economies. However having said that other central banks like Bank of Japan and the ECB be well behind the curve. Bank of Japan would never tighten. ECB missed the boat. We think core Europe will be in recession and verified later this year and the UK is in the same boat. Just like the day synchronisation in monetary policy. And again China stands out on itself because it needs to do something very innovative from a fiscal monetary sense to repair what's going on in that economy for a number of years. So in the back of that we think that the US or North America and commodity economies like Australia would have a soft landing. And we believe a lot of the rate hikes are priced in at the moment not for a hard landing a lot of the rate hikes. And my final point on this is that implied rate futures for the Fed funds were towards 3 a month ago and towards 275 in Australia. And now they're about 25 basis points lower. So they're getting comfortable with this scenario. The rate hike and when you get to two and a half real for the two and a half nominal Fed funds rate that will create more stability going forward. It's just the pain that going through at the moment is required to get there for more stability in the future. The RBA. The RBA has said that neutral for Australia is somewhere between 2 to 3 per cent obviously that sort of moves around a little bit. But does the changing government have any implications for the RBA if we do see a bit more spending around the margins maybe a higher wage narrative and that renewed focus on climate investment. At the margin it's a high cost narrative and a high cost narrative on health care. But the advantage of the incoming government have is that a majority in the lower house and I don't need to do a deal with the Greens and that is the biggest hurdle they had to overcome. They got bit more clarity to deliver what they needed. Their concerns were what do they do with orcas. And they were the straight on the plane and kind reaffirmed their commitment to orcas. The commitment to nuclear submarines et cetera. And that's been important. But taking a step back they are going to spend more on health care. They have promised wage real wage rises somehow across the economy. And one would think this population in part coming in the mind they've got they've got a starting situation the best G 20 economy economic performance through the through the Covid period. The debt is excessive but it's quite good. So there's a lot of positives that they've gotten and the tight labor market and they're starting point. But a lot of positive also are coming recently from China. News I mean especially on perhaps a review of the tariffs by the US not to mention all of those specific measures to support the economy from Beijing our endless polls. Question Do you expect to increase or decrease your exposure to China in the next 12 months. Yeah. Very quickly so we've got native sons being trapped twenty three years. March quarter last year it didn't hold top ten holding for the first time with China exposure. Very complicated what they were doing and confusing for us. It's very hard to be predictive on future earnings in mainland China. Going forward there's extreme value there. It's a hard landing that they've got for their economy. And we'll look and we'll issuing there's an accumulation of Chinese exposure from a low base but not to the same levels that we had to say for that 2012 to 2021 period. So what are your top calls at this point especially if you have a rebound in China perhaps then there are so many different economies across Asia that are dependent on that. Yeah so rising interest rates they synchronization remember with monetary policy it's not rising interest rates across the globe. But generally we say structurally the commodity cycle is strong and there's gonna be cyclicality involved with that. That's good for Australia. It's good for Canada parts of South Africa even parts of the pack region like say Indonesia some parts of their economy are rising interest rates and that steep swap curve even to look at flat over the past two weeks. It's good for diversified financials and we like that. We like it with Goldman Sachs and Macquarie Bank as an example of that global play. And and then taking a step back some some sort of industrial exposure where there's no margin compression that the food inflation is going to put a lot of pressure in the developed world on generally good food. Food supplies. And that's that's an area that we're very cautious hope for reregulation as well in some parts of the world. But generally we see that valuations are very compelling for the soft landing coals of North America and the commodity economies. And we quite like that. And dividends are a good cushion for those growth at reasonable price to value plays as we've never played into the growth at any price. Technology.

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U.S., Commodity Economies to Have 'Soft Landing': K2 Asset Management

George Boubouras, head of research at K2 Asset Management, discusses the outlook for markets, central banks' policies and economies, and the opportunities he sees. He speaks with Haidi Stroud-Watts and Shery Ahn on "Bloomberg Daybreak: Asia." (Source: Bloomberg)

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