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00:00There seems to be a lot of euphoria, equities are up, precious metals are up, never mind what
00:04happened in Venezuela. Is that too much optimism? Is that too much complacency? How are you viewing
00:09the market right now? I think if the up sign next to those markets is a reflection of diversification
00:18away from U.S. exposure, that's a healthy sign and it reflects a continuation of a theme which I
00:25believe we are in the early innings of which started last year, i.e. that U.S. exceptionism has peaked
00:31and is starting to unwind. If you think about the U.S. as an example, it still represents 64% of
00:38global stock exposure, yet only 25% of global output. That is a very big disconnect and that
00:46is only corrected by 2% over the course of last year, largely as a function of what Paul already
00:51described, rallying markets outside the U.S. which have overtaken the U.S. I believe that is set to
00:58continue and it is set to continue driven by a desire to de-U.S. if I exposure which is perhaps
01:06disproportionately large in U.S. assets. So North Asian markets like China, like Korea, like Japan
01:12will continue to do well. Emerging markets will continue to do well. They were outperformers last
01:18year and they've had a great run the beginning of this year too. I don't think there's any reason
01:22to believe that those are isolated one year off performances. The thesis for emerging markets is,
01:30in my view, stronger than ever. There are so many reasons for it. Valuations alone, which have been
01:36cheap for a long time, are not just a catalyst, but they're there. Despite the rally, valuations are
01:41very interesting, particularly in emerging market equities. If you look at emerging market debt,
01:46these are economies where inflation is well under control. Average local interest rates are five and
01:52a half percent. We believe there's room to cut a further one and a half percent, which provides a
01:58capital upside. Growth differentials are only increasing relative to developed markets. And of
02:04course, many of these economies, the ones you described as, Linda, are beneficiaries of the AI value
02:09chain as well. The list is very long. It's growing and it's hugely stacked in favor of both emerging
02:16market debt and equity. And it's also about monetary policy, that divergent path between the Fed and the
02:23central banks in this part of the world. Yes, but interestingly enough, even though we are having an
02:29economic divergence, some of those monetary policy metrics are starting to converge. For example, 85% of
02:38central banks globally are looking to ease and to cut. Brazil, South Africa, many frontier markets.
02:44Of course, the Fed is potentially cutting, but arguably for different reasons. In emerging markets,
02:49they're cutting for fundamentally sound reasons, because inflation is under control and they can
02:55and should cut. Whether the Fed should continue to cut is a very debatable point. What is the one
03:01macro risk that you're keeping an eye on that perhaps investors are mispricing or not paying enough
03:07attention to? That's a good question. I can think of two, but if you really channel me to... Go with two.
03:13Okay, we'll start with one. Interest rates. I really believe that U.S. interest rates, particularly term
03:23interest rates, are very perfectly priced. Let's put it that way. Depending on the Fed choice, the Fed
03:32chair choice in May of this year, all that will do is influence the front end of the interest rate
03:38curve in the U.S., whether that's a dove or not. What the Fed will be less in control of is term
03:44interest rates. And for me, that has profound implications on the broader economy. If we think
03:49about capex spending with the AI hyperscalers, they've started to shift towards debt financing.
03:55And as a result of that, they're going to be more vulnerable to term interest rates, not just policy
04:00rates. Those term interest rates are a function of the classic supply and demand. And if more and more
04:06agents worldwide are looking to de-USify both bonds and equities, surely that also potentially has
04:15implications for U.S. treasuries. And as a result, I potentially see a risk of yields breaking much
04:21higher. And of course, if they move too quickly, that can be very destabilizing for a stock market,
04:27which is now looking to be well poised and well positioned.
04:30How much higher for those yields? How high might they go?
04:34That's difficult to predict. It's more about the velocity of that move and whether we break
04:38potentially 5% on the 10-year, which of course is a long way away from right now.
04:42I identify it as a tail risk and as a risk in answer to your question, which I believe
04:47is underappreciated right now, because that is something which can be less controlled by the
04:53Fed. Of course, there are twists and things which they can do on the yield curve. But ultimately,
04:57that is driven by global appetite for U.S. assets, not just risky assets, a perception of safe assets.
05:04And that remains a big question mark for me.
05:06You talk about how we're looking at a de-USification.
05:09Yes, I just made that word up. You know what I mean.
05:13But bearing in mind what you have just said, are we then looking perhaps of a de-dollarization as
05:18well? Does one come with the other necessarily?
05:21That's a great question, because if you look at how last year played out, we had a 10%
05:26downward move in the dollar, but unscathed in U.S. assets. Not only unscathed, actually a rally of
05:3317% in dollar terms in the S&P. And of course, Treasury yields continuing to squeeze even lower as well.
05:39So you had a dichotomy and a divergence, rather, between the dollar move and asset class moves.
05:47What happens if this theme of diversifying away from the U.S.? Let's frame it in positive terms,
05:54actually embracing other unloved markets, like emerging market equities, like European stocks,
06:00and so on and so forth. Let's assume that continues. Now, of course, that has profound implications
06:05for continuation of the dollar decline. But can we imagine that the dollar continues to decline
06:11without affecting the price and valuation of U.S. assets, both stocks and bonds? That's something
06:17I'm wrestling with, and I find hard to believe that it can be sustained, and I believe is one of
06:22the bigger risks in the markets. The fact that a dollar move and a continuing dollar decline
06:26can actually start to reflect and drag U.S. asset valuation down as people start to sell
06:31and diversify away. And we didn't see that last year, Haslinda.
06:35If you were to hazard a guess on how the dollar would move this year,
06:38what would be the catalyst that you're looking out for?
06:42There are several catalysts. The most recent one is what occurred in Venezuela in the past few days.
06:48Now, on the one hand, I believe that many who are jumping to the conclusion of drawing parallels
06:54with Maduro, China and Taiwan, Russia and Ukraine, those are quite stretched.
07:01Maduro, I think many would agree, is globally recognized as potentially not the best actor.
07:07And I don't think those parallels with Taiwan and Ukraine as targets are relevant in any shape and form.
07:13What I found a little bit more concerning is the rhetoric, the narrative, which followed after the event.
07:24This talk of the Donroe Accord, which is an enhanced version of the Monroe Accord in 1823,
07:30effectively the U.S. telling Europe to butt out of U.S. affairs.
07:34Now, if that is a reflection of increasing geopolitical fragmentation, imperialism,
07:40and a desire to control the Western Hemisphere, already there's been chatter about Greenland,
07:46Cuba, Mexico, and so on and so forth.
07:48And now, if that continues, how can we imagine a world of asset allocators
07:53who are comfortable with that disproportionate allocation in U.S. assets?
07:57Of course, they'll maintain exposure, but the same level? Potentially not.
08:02And this is where I see that trend continuing and the de-USification starting to broaden beyond just the dollar.
08:09Do you see investment opportunities in that?
08:14Great opportunities.
08:16This is why I don't want to frame it negatively.
08:20The U.S. is always going to play a huge and central role in investment portfolios.
08:26But come back to the earlier point about 64%. Is that the right number?
08:31Think about European equities.
08:32I think European equities remain extremely cheap.
08:35They're trading at a 30% discount to the U.S.
08:37The fiscal taboo has been completely obliterated, not just broken, not just in Germany, but the rest of Europe.
08:45That spend alone is going to lift European growth, trend growth, from 1.1% to 1.5%.
08:51It may not sound like a lot, Haslinder, but it is a lot for trend growth.
08:55And that, of course, means a significant re-rating in stocks.
08:57We've just talked about the stock market in Asia and other emerging markets.
09:02I think there are wonderful opportunities in both emerging market equities and bonds, European and other developed markets away from the U.S., and potentially even in private assets, but maybe with a tilt towards European markets.
09:14I want to talk about the business, your business.
09:17As a result of what happened in Venezuela and what happened to Maduro, the Swiss government has frozen his assets and the assets of people close to him.
09:26I'm just wondering whether there's been any implications, any impact on Pictet or any of the other wealth managers in Switzerland.
09:32No, there isn't a direct consequence of that, but it's important in this kind of environment of geopolitical fragmentation that we have a long-term perspective, right?
09:46We have been private for 220 years, and that's allowed us to see beyond the trees.
09:53When you look at the market reaction to Venezuela, as you said, Haslinder, there was euphoria.
09:58Everything was up, up, up, plus, plus, plus, greens everywhere.
10:02But if you think about the medium-term consequences, right, what does that mean with regards to regional blocks, economic blocks continuing to solidify and isolate from each other, and then the implications on markets?
10:15So I believe that we are very well positioned in Switzerland with our neutrality to make those objective and very long-term and very neutral decisions about asset allocation in that regard.
10:26And is Switzerland still well positioned to be the leading financial hub?
10:32It's seen a lot of headwinds of late, including tighter security, tighter regulatory environment.
10:38Do you see Switzerland still holding that position?
10:41I do, and I think we are in an enviable position because of our geographic position, because of our neutrality.
10:48And as I say, because of how we are structured, if I think about the PICTE group and how we are constructed and we are structured as a private organization, we're not trying to determine the short-term trends or fads.
11:01We're trying to look long-term to the benefit of our clients.
11:04That's what we've done for 220 years, and that's what we're going to continue doing for the next 220.
11:08And what's the plan for the next 12, 24 months?
11:10Are you hiring more, given the opportunities you see, especially in this part of the world?
11:15I think the business outlook is interesting, it's bright, but it has to pivot and it has to evolve with the evolving geopolitical and economic world that we're in.
11:25What does that translate to for PICTE?
11:27It means Asia continues to be a very, very strong focus of ours.
11:31In the past, it was servicing Europeans looking for Asian exposure.
11:35Now it's increasingly servicing our Asian wealth and asset management clients who are looking for global exposure.
11:41If I think about other megatrends which I think are shaping our business, cyber security, this was the other risk, by the way, which I didn't mention earlier, something which I think is underappreciated and underestimated, but which we take extremely seriously.
11:55Already many crypto exchanges have been breached.
11:58This is a theme which I think is going to continue and could represent another tail risk.
12:02And this is also how we need to orientate our business to the benefit of clients.
12:06There are many dimensions, instant finance, whether we think about tokenization, active ETFs, and the impact of geopolitical fragmentation on asset allocation.
12:16These are top of our mind right now in how we service our clients.
12:19Is the strong Swiss franc top of your mind?
12:22How is that impacting business and profitability?
12:24How are you managing that?
12:26The strong Swiss franc is always on our mind and on the mind especially of our local Swiss investors,
12:31because they find increasingly challenges in finding global opportunities once you swap it back into Swiss francs.
12:39We believe we're well positioned.
12:41What are you doing about it?
12:43How are you managing it?
12:44Agility in a multi-asset portfolio, offering a suite of private assets beyond the usual with a very strong European tilt.
12:52Alternative investments, particularly hedge fund investments, which are providing higher octane, uncorrelated returns, swapping well into Swiss francs.
13:01These are some examples.
13:02And, of course, let's not forget where we started in the first place, Eslinda, emerging markets.
13:07It is different this time.
13:08There are many reasons why it's different this time.
13:10We've had that before.
13:11It is different this time.
13:12It is.
13:12But you've heard it here.
13:13There are many reasons why it's different.
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