Still Constructive on Chinese Equities, Huynh Says

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00:00I wonder what you made of that UK budget. Yes, we've got doubled headroom against the

00:05Chancellor's fiscal rules, but are you convinced about the backloaded fiscal consolidation?

00:12So I think there was a lot of expectation around like potentially some kind of like drama,

00:20potentially higher bond yield, like the pound crushing. Didn't really happen. So ahead of it,

00:27we were already long yields and we were somewhat expecting the pound to continue going lower.

00:35I think putting that aside, what's going to be much more important for UK assets going forward

00:39is the fact that we still expect the Bank of England to cut lower and more than what the

00:46market is really pricing at this point, which is going to continue driving yields lower as well as

00:55a cable lower in this environment. Really interesting. So how many BOE cuts are you seeing

01:00now next year? So we're expecting, so if you look at the forward curve in terms of where the US is,

01:08where the UK is, we're really expecting at this point, like for the Bank of England around 2.5.

01:16So that's the view of our UK economist. And we think it's going to continue in terms of interest rate

01:23differential to continue driving the pound lower versus the US dollar and US forward rates, where

01:30I think in terms of like what you see, what's really priced at this point, the Fed is expected

01:35to cut to 3% by September next year.

01:38I find it somewhat amusing that the bar for success was there wasn't a gilt sell-off and

01:44the pound didn't crash, Sophie. Off the back of this budget, are you any more attracted to gilts?

01:52So we're still holding onto it. I think it's more, if you think about it, like we pushed aside,

01:58if you push aside the domestic interest and credit risk, I think what's going to matter at this point

02:03is, was a way to gear and to have some duration exposure in the portfolio out of treasuries.

02:11So it's a way to diversify out of the US markets. So at this point, we still like it as a trade,

02:18on top of the fact that for us, it's a positive carry position that we're still holding on.

02:26Okay, well, in the global spirit and on Thanksgiving, just talk to me about what's worked for you

02:31in 2025, Sophie. So if we look at our portfolio, we've been basically long, the high beta names

02:42and indices within the equity complex, so diversifying out of the US. So we've been long

02:48summaries, long courier, especially since May, which has been working quite well. So I think at this

02:54point, we've been trying to gear to the structural themes, which have been working quite well at this

03:00point. Heading into next year, I think the story is really going to be about whether we're going to

03:07have a rotation a bit out of AI into the more cyclical names at a time where I think we're a bit

03:16underestimating the risk of a right tail scenario and a cyclical upswing, especially in the first half

03:23of next year. Yeah, I mean, how much does the bottom half of the K-shaped economy worry you

03:30in the US, especially when you look more broadly across the S&P?

03:35So I think the K-shaped is broadly priced. At this point, everyone is talking about it from a macro,

03:41but also from a bottom-up standpoint. If you look at the PX Max 7, as well as the tech stocks,

03:50the P is actually lower. If you look at consumer confidence on top of a consumer discretionary

03:55equal weight versus the market, you see that there's somewhat some pricing of low-income cohorts

04:04struggling in this environment. So to some extent, I think the K-shape is already there

04:10and somewhat priced. The surprise could come from potentially next year where the fiscal impulse

04:15overall, I think more broadly, is and in the US is expected to be positive. So what if the K-shape

04:24is actually going to close down a bit rather than continue to widen further?

04:30And what about the fiscal impulse here in Europe? Is there too much pessimism about European equities

04:37into 2026?

04:40Oh, yeah, definitely. If you look at the German side on the announcements, I think broadly,

04:46people were super positive. A thematic basket really outperformed. I think at this point, broadly,

04:54if you talk to people around like the table but across the street, there's definitely a lot of pessimism

05:02on European equities. So apart from exporters, if you look at the more consumer-led names,

05:08they have clearly been underperforming. And the cyclical laggards are actually showing signs of

05:13pickup at a time where PMIs, but also like on the soft data, the hard data are starting to show signs

05:20of uptick. And we're starting to see it in Sweden, for example, where it's really the typical interest

05:26rate sensitive country where we're starting to see signs of green shoots. So if you look on the PMI

05:32side, if you look at, you know, the ratio of new orders versus inventories, what if we're going to

05:41have this broad repricing higher where, you know, like the benefit of the one year and a half of

05:47monetary easing starts to materialize. Okay. And just finally, I want to take you finally on our

05:55world tour to China, because it's interesting that you're still constructive. Why?

06:01So I think for us, if you look at terms of correlation with the rest of the equity complex,

06:06the correlation is still low. So it's bringing diversification. I think they have a clear path

06:11path in terms of what they want to do, in terms of technology innovation, as well as boosting

06:18consumer demand. So it could be more or less with export and the fear of how they could be exploring

06:27over capacity abroad. But overall, for me, the path is quite clear on where they're going. And it allows

06:33also to get exposure to AI out of the US. So we're long across A, H and China Tech. And for this year,

06:44so we've been long since, I think, and 2024, October 2024. So it's been really a good trade for us,

06:52and we're still keeping it for now.

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