00:00Let's start first on the topic of the day, though, that looming U.S. government shut down.
00:06It's so interesting how global equities have shrugged that off.
00:09And for this year also, the tariff risks.
00:13What are you seeing in the nearer term outlook?
00:15Is there enough momentum to carry us into the end of the year?
00:19So I think that there are definitely implications on the economy from both tariffs and also government shutdown.
00:26But the reason why you're seeing the market kind of disregarded a little bit is because, in general, we've been through many government shutdowns in the U.S.
00:34In general, they last for about nine days.
00:36And the rule of thumb is one week is about a 10 basis point impact on the economy.
00:42And so usually they don't last that long. So really, we'll be watching to see how long it lasts.
00:47But generally, markets do tend to rebound back.
00:50It's also happening much earlier than the next political cycle, election.
00:54So probably not, you know, significant impact on politics short term.
00:59And so, you know, for us as long term investors, we actually see this market volatility as opportunities to invest in higher conviction ideas.
01:07What are some of those conviction ideas?
01:09Higher conviction ideas, yes.
01:11Well, this year, you know, we've seen a lot of diversification, I think, has been really the term this year.
01:16We're seeing a diversification of the markets.
01:18So this is the first time since the GFC that you've seen, you know, massive fund flow into international markets.
01:25And the international markets have done much better than the U.S. markets.
01:29So emerging markets up 27 percent.
01:31You know, you have MSCI World, Japan, all up more than the U.S.
01:35And I think it's because fund flows are going to where they see attractive opportunities.
01:39And we're seeing, you know, a lot of earnings growth upsides in sectors like European banks.
01:45We're also seeing a lot of opportunities in government regulators basically coming out and saying that they want better corporate governance for their companies and their countries.
01:56And we're seeing that in Japan, we're seeing it in Korea and China.
02:01And, you know, when you have governments telling you, the regulators telling you that they want their companies to be, you know, structurally more healthy and also more profitable with returns to shareholders, that's usually a very good thing for investors.
02:14So that's also something that I'm very constructive about.
02:17Particularly for China, a lot of this is also driven by the AI theme.
02:22How much exposure do you have to that?
02:24Are you looking to increase that a bit more?
02:27So we have invested pretty broadly behind the entire AI stack at Capital Group.
02:35But we've been doing that for several years now.
02:38So we do think that AI is kind of the next megacycle.
02:41If you think about the potential TAM, the total addressable market for AI, you know, short term, it's supposed to be about two trillion U.S.
02:50But if you think about the entire global GDP, which is about, you know, a hundred trillion and 50 is labor, you can see what the massive potential upside is.
03:02So that's why you're seeing significant investment in AI, you know, from infrastructure to the data centers, because it costs a lot of money and investment in order to build these LLMs, the models.
03:15Okay.
03:16What's also interesting is when you look at U.S. versus China tech, you know, all these concerns about lofty valuations in the U.S., are you seeing that as a risk?
03:26Is that something that you are putting into your metrics, your calculus?
03:30You know, we I think of it more as less top down and more kind of bottom up.
03:35So for a lot of the companies, they're actually growing into their valuations, you know, and that's really what's happened with companies like NVIDIA over the past several years.
03:43The valuation looks optically high, but then they're surprising on earnings estimates.
03:48And so, you know, at the end of the day, the valuation is less less high.
03:52And I think it's the same for the U.S. market.
03:54You know, the U.S. market is trading at like a 24 times current P.E.
03:58But when you deconstruct it, it's about 30 times for the Mag 7 Plus and it's 20 times for everybody else.
04:05So there's there are a lot of companies, even in the U.S., that look pretty attractive from a valuation perspective.
04:10Which is quite remarkable, given what we saw post Liberation Day, for example.
04:14Do you think we can say that the sell America theme has come to an end?
04:19You know, I don't know if it's a sell America.
04:21I think it's more of where are opportunities, right?
04:24And right now there's a lot of investment going into AI globally, but also a lot of investment going into, for example, defense in Europe and Asia.
04:33You know, there's a lot of investment going into AI in Asia as well.
04:37And so and also we see a lot of capital appreciation in sectors where the companies are basically trying to become better, better quality companies, you know, reducing loss making businesses,
04:51returning capital to better capital allocation and shareholder value.
04:56So so that's kind of where we're seeing fun flows and opportunities.
05:00So it's less one versus the other.
05:02I think it's really kind of identifying where the attractive opportunities lie.
05:07Amongst sectors, what's also been interesting is what we're seeing in gold commodities.
05:12That's really underpinning some of these mining stocks.
05:15Is that something you're looking at as a trend that you can position for longer term, perhaps?
05:22Well, I think, you know, there are a couple of different things happening with the various mining stocks.
05:26I do think that some of the mining stocks like copper are leveraged to EV and to some of the new technology.
05:33And I think that's one of the reasons why they have done well.
05:36And it's you know, as you know, it's very difficult to operationally execute.
05:41And so there aren't that many companies that can do it well for gold.
05:45We're seeing a combination of market volatility.
05:49And so that's why people are using kind of gold as a, you know, as a safer haven.
05:54I think that that might last for a little bit longer just because, again, we have a lot of market volatility with the tariffs and with the government shutdown and, you know, kind of reciprocal tariffs.
06:04So it's probably unlikely to change short term, but also the companies are getting better, you know, better operationally, better with capital returns.
06:14And so, you know, it's a combination of multiple, multiple different factors.
06:18And it also, I think, amid the volatility, and that's why gold is doing well, is, you know, drawing things back to the basics of active management.
06:28How do you, you know, view the landscape and how does that help position for the future?
06:33Yes. Well, you know, the fund that I'm in, New Perspective Fund, actually, the objective is to benefit from changes in trade, in global trade.
06:41So, as you can imagine, we've been incredibly busy over the past several years as trade has changed so dramatically.
06:47And we do think that there are going to be some longer term, secular, big changes in trade that's happening, not just this year, but has been already shifting from, I would say, 2018.
06:59And then COVID probably facilitated, you know, that fast track, that shift.
07:03So, you know, we are finding through changes in trade, many opportunities to invest in companies that are benefiting from those changes.
07:13So, you know, we are finding through changes.
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