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In the News

Assessing Value Across Emerging & Developed MarketsAssessingValueAcrossEmerging&DevelopedMarkets

7. Dez. 2021

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PGIM’s President and Chief Executive Officer, David Hunt, joined Bloomberg TV’s “Daybreak Asia” to discuss the investment opportunities and risks that exist across Asia. During the segment, Hunt shared his perspective on uncovering the value in emerging and developed markets, as well as the market implications of Federal Reserve policy and inflation for investors in Asia and around the world.

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  • –

    >> Well, the recent bounce of highs and volatility in U.S. treasuries as the Fed curtails its buying is causing some palpitations across the market. We're seeing [inaudible] of high inflation, the pandemic's refusal to go away causing large daily swings in yield, really indicating concerns over liquidity and also memories of past [inaudible] being stood up as well. To talk through how he sees his markets going forward. Let's bring in PGIM CEO David Hunt. David, always great to have you with us. And it's very interesting because there are some parts of this market that we see as being either quite syncratic to, say, the U.S. economy and some of the ways that things are functioning there, but is it possible for you to predict whether we'll continue to just see these waves of volatility as we get closer to normalization when it comes to monetary policy?

    >> Sure. Let me make a couple of points about the big Fed pivot that we saw over the last week because I think it has rippled right across the world. But a lot of people make a number of mistakes in trying to interpret this. First, I think there has been a belief that somehow this means that with a quicker taper and more rate increases expected for next year that interest rates will go up. And actually that's a bit of a misnomer. On the short end, we certainly have seen rates begin to rise but actually at the long end we actually see yields fall. And we've actually seen the ten-year begin to come down a little bit as well. And Heidi, we've seen that in the past as we've had some of these little, mini-taper tantrums along the way. And what the market is saying is that as we get through this over the next couple of years, the market expects slower growth, and we will have lower rates in the future. And so our belief, and we've been very consistent on this really over the last seven or eight years is that we will go back to a period where the ten-year is in a period between 1 and 2% and that we've actually seen the highs as we go through this cycle now. And we've held onto that view, and there's nothing in the last week that really has changed that for us.

    >> When you talk about this maniacal search for yield that has really dominated and driven sentiment, right, does that mean you feel like there's a better home for that search in Asia, that you're more opportunistic to some of the [inaudible] growth stories here?

    >> Well, I think that there is no question that having, you know, the punitive rates on cash that we have right now that we will see a absolute focus on yield over the next 24 months. And what that means is there is an enormous amount of money that's looking for a home in private credit, in real estate, in infrastructure and, as you put it, in some of the really important markets in Asia which have both higher interest rates and higher inherent long-term growth rates in their economy. And we are seeing real interest in investing behind those [inaudible] but that movement toward private and toward yield is something that has been strong and we expect to continue for the sustainable future.

    >> What are your expectations out of China? It is such an interesting but also challenging time at the moment. We're looking at this massive debt restructuring for Evergrande. We're looking at easing monetary policy conditions and slowing economic growth. What are you targeting in greater China?

    >> It's really interesting because on the one hand if you read the newspapers, all you see is, you know, rising political tensions, security issues, you know a lot of I think worry that the world is continuing to divide. But as I travel the world and talk to CIOs of large pension funds and sovereign wealth funds, what I hear is their biggest concern is that they're underweight China, that they believe the economy there over the next decade will continue to grow faster than much of the rest of the world and that they want to make sure that they're well-positioned to capture that excess return. And so we're working with a lot of clients around the world in helping them create differentiated ways to access the China markets, whether or not that's through the public markets or the private markets so that they make sure that they're well-positioned for the next decade in China. So our prediction is yes, it will be volatile; yes, there will be political tension but in a strange sort of way that just means that there will be more emphasis really on the integration of the capital markets that we will see and that we need to play a role and intermediate.

    >> But for a very centrally-controlled market like China, how do you factor in the political risks because at any given moment they could change their policies? We have seen this crackdown on so many different sectors already in the past year, whether it's property, whether it's tech, whether it's education. So how do you hedge that?

    >> I'm not sure there's any good hedge for that at all, [inaudible]. I think that, you know, unfortunately investors in China are going to need to take the long-term view. Things do change quickly there. They are inherently unpredictable. But if you look at the growth rates that have happened in that country over the last 30 years, it's actually been a remarkably steep climb. And our view is that-that is likely to continue. We see a lot of very strong fundamentals. Obviously, growth will come down from the very high levels that it's been out, but we see some strong fundamentals there which we think will continue to power economic growth. And so many of our clients want to make sure that they're positioned to access it and are willing to accept that they need to ride out some of the short-term volatility.

    >> Do you need to factor in the policy divergence that we are now expected to see given the Fed tapering and also the PBOC now taking a more pro-easing stance especially, as you said, we have this maniacal search for yield.

    >> No, you're absolutely right. And the strange thing is, of course, as the economies diverge in some cases, let's just take technology as an example, where more and more we're seeing that you used to be able to play China by simply owning Apple or you know another major technology company that had major sales in China. That's less and less true going forward. So you actually need to be in China, investing in the Chinese technology companies. So actually as the global firms become almost less integrated, it's more important, as a portfolio manager, that you have that kind of exposure that can be driven by being on the ground, invested in Chinese stocks and bonds and that's really what we're seeing from our clients.

    >> Would you say that right now valuations look better given already that we've seen the political risk being factored within and all of the [inaudible]?

    >> Speaking of developed markets, you're also quite constructive when it comes to opportunities in Australia and New Zealand, particularly here in Australia. We're sitting on one of the biggest pension piles in the world but again the search for yield, the search for investable, you know, good quality assets remains a bit of a problem. Right? What are the opportunities for growth that you see?

    >> Well, I think for Australia in particular, and I must say I'm really a great admirer of the system that you have there in terms of the -- it's one of the truly only pension systems around the world that is in cash surplus and I think that's really the important thing to acknowledge up-front. But what that does mean is that there's a great amount of money that's coming in that needs to be put to work. In the past, much of that money has been put to work in Australia, and you are the beneficiaries of a very good infrastructure as part of that and a lot of investment in property. But now I think the time is going to be to diversify much more of that outside of the Australian economy. And I think that many asset managers, such as PGIM, but there's a wide range of us, are going to have an increasingly important role to play in helping the superannuation funds put that money to work in the rest of the world.

    >> Crypto. We have to get your views on crypto. What role does it play in a balanced portfolio going forward? And how close is it, do you think, to being able to, I guess, minimize the levels of volatility that we continue to see?

    >> Well, I would be disappointed if you didn't ask about crypto given where we are. So we're long-term investors, and we're fiduciaries on behalf of our clients. And for us to put an asset class into a portfolio, three things need to be true. The first thing is that we need to be comfortable that there is an effective, regulatory framework that surrounds that asset class. The second thing is that we need to believe that there is an effective store of value and a way of monetizing that in the future. And last, we need to be able to understand what the correlation between that asset class is and other asset classes so that we know how it would fit in an investor's portfolio. Fuse that with how do we effectively put people's retirement savings to work? Now maybe in the future if we get a regulatory framework and perhaps as some of the stability comes to the market so we get the correlations to be clear, maybe a bit like gold did, you will have a role but right now it really doesn't qualify in our view.

    >> In fact, when it comes to Bitcoin and also those retail meme stocks as well we have seen a little bit of downside pressure in the past few months. When it comes to 2022, what do you think the outlook will be, especially when it comes to risk appetite for some of these speculative trades?

    >> So my hope is that -- in many ways crypto currency has gotten all the attention but it's actually the least interesting part of the innovation. So behind crypto stands a really interesting technology, which is the disaggregated approach to actually holding large sources of stored value in a disaggregated way and that is, I think, really interesting and really important. And much of the financial [inaudible] that we have, whether what we use now for banks in custody services, what we do for clearing and settlement actually can use blockchain technologies over the next decade and so my hope for '22 is that in some ways some of the focus that's been on currency will actually come back to what's really the important innovation which really is these disaggregated ways of managing large, complex systems of information without a single counterpart and that's really quite exciting.

    >> David, always a pleasure speaking with you. Do join us again soon. Thank you. David Hunt --

    >> Very nice to be with you again.

    >> -- PGIM President and CEO. Thank you again.

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