VSP CIO on Bloomberg: From Marco Changes Dominance to Fundamentals Comeback
Sep-14，2022 | VS partners
Sep 13, VS Partners Executive Chairman and CIO, Vanessa Xu, on Bloomberg Markets: China Open
The full interview program is welcome to click on the original link at the end of the article to watch. The following is the main text of this interview.
Repositioned portfolio to address regime changes
●Last December on the show, I warned of Fed policy risk— hiking rates and reduced balance sheet in a slowing economy；and the inflation might be more persistent than people think. That’s precisely what has happened. Macro regime changes have been dominating the market in the last nine months.
●We have repositioned our portfolio to address the financial market regime changes happening in interest rate, liquidity and volatility, and the broken correlation of risk assets that have prevailed in the past 15 years.
●Looking forward, fundamental will return to be the dominating factor because the market calms down from the panic in the first half.
Stay on with fundamentals for the rest of the year
●A worse economy perhaps is better news for the market, meaning that if the data-dependent Fed sees the following two signals, it might reassess the policy stance on rate hike and balance sheet reduction going forward
○ Inflation, particularly the core inflation to tail off.
○ Labor market slack
●There are a couple of lingering factors in terms of structural demand and supply imbalance that plays a role in the fundamentals, including the longer term energy and the commodity cost dynamics, and the softening demand as central banks continue to tighten
Where the opportunities are
●Predicting the central bank policies on the macro side becomes less critical right now because the market has gradually calmed down from the panic in the first half of 2022 and shifts attention to the fundamentals.
●We positioned for quality growth equities with true earnings power, cash flow generation, dividend, a positive real equity yield rather than nominal yield.
●If we see signs of strong dollar cycle peaking, it would be the time to add high quality emerging markets growth equities and their local currency denominated debt.
Beware of upside risk of China
●China market is trading on a very depressed valuation as the sentiment couldn’t be more bearish after a cocktail of risk events.
●We have seen some of the internet platform companies just reported earnings that exceeded the market bearish outlook, but the market has remained bearish on China market.
●We need to think of the upside risk of China market next year. Investors who deemed China as un-investable might be caught off guard in the upside risk of China market. We need to see what policy measures will come out of the 20th National Congress of the Chinese Communist Party.
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