00:00There's just a lot going on. There's a lot of risk out there, a lot of geopolitics.
00:04If you look at the UK, does that change the trajectory for UK assets if you have a new prime
00:09minister in charge?
00:11Look, so first of all, yeah, we're dealing with a very complex backdrop, a lot of moving variables.
00:15I think as far as the UK, there's definitely some risk in that the guild market could act up a
00:20bit
00:20and you could see sort of rates sort of backing up a bit further.
00:23Still a bit too early to say, but we think that the transmission mechanism into global rates
00:28will likely be more muted. And the bigger story for us is really how does the current energy shock
00:33and the oil shock tied to Iran and the Strait of Hormuz play out in the coming weeks?
00:37So how does that play out? First of all, I mean, it plays out in bonds, it plays out in
00:41energy prices and inflation.
00:43Look, we've had a pretty big supply disruption and so far inventories have helped offset a decent amount of that
00:51shock.
00:51And so we're now basically, as we go into June, we're basically looking at a situation where inventors are getting
00:57depleted
00:57and we're going to be getting closer and closer to what you could basically call operational stress levels.
01:02And so we think that one way or the other, that's going to start to force potential reopening of the
01:09Strait
01:09because otherwise the situation is just going to get out of here.
01:12What does that mean for markets? Because the markets have largely looked through this.
01:15I mean, we're seeing record highs on many indices despite the situation.
01:20And diplomatically, it's really difficult to see a way forward with a lasting ceasefire.
01:25I mean, look, markets, especially if you look at like, you know, risk assets, equities, even credit markets,
01:30things have generally moving in the right direction outside of that initial sort of fear.
01:35I mean, I would say a few things.
01:36One, we're entering this energy shock with relatively healthy inventory.
01:41So the runway is perhaps a bit longer than what we initially feared.
01:45And at the same time, the fundamental story underpinning corporate earnings has just been blockbuster.
01:52Earnings delivery has been extremely strong.
01:54One Q earnings season has come in much stronger than what people expected.
01:57And so I think the earnings, the AI narrative has just basically been overriding the whole geopolitical oil situation.
02:03Now, obviously, if you sort of fast forward another, call it four, five, six weeks, situation remains unresolved, you've got
02:10complacency.
02:11I mean, what does that look like?
02:13So it's a correction in the markets?
02:14Because, again, we have a stellar earnings season.
02:17But actually, you know, the next couple of quarters, I think, are a lot more uncertain.
02:21So I am less worried about fundamentals because it's not about expectations.
02:25Earnings delivery is coming through.
02:28And so, if anything, I would make a case that multiples and valuation has gotten a bit easier,
02:33even with the markets moving higher, just due to this massive earnings revision cycle upwards.
02:38Having said that, you've got potential risk around excessive crowding that could cause, you know, flash crashes.
02:46Momentum stocks are bid up quite aggressively.
02:48So, again, short term, I definitely think there is risk and there could be some digestion periods.
02:53But unless the earnings picture changes, I think, you know, people buy the dip.
02:57I mean, when you look at inflation, so we have that CPI number.
03:00I mean, this will be decisive in deciding what central banks were doing.
03:03And actually, if you speak to central banks, they're kind of on the fence, right?
03:06They're themselves worried that they're either too late to the game or get it wrong.
03:10I mean, central banks have been removing that sort of, call it, easing bias that we had late last year
03:15coming into this year.
03:16Some are already talking about hiking, Fed so far on hold.
03:19Having said that, you know, yes, a lot of focus is on inflation and the upcoming CPI print.
03:24But I think it's also something that's pretty well advertised.
03:27So the question is, to what extent does the market look through this as a more of a temporary versus
03:31more of a permanent sort of sticker shop?
03:34I understand that the hyperscalers are funding a lot.
03:37I understand that CapEx, rightly so, is a state in the economy.
03:40Do you have any concerns about AI?
03:43I mean, yes, there will definitely be concerns about AI.
03:47I don't think it's in the next six months.
03:48I don't think it's in the next 12 months.
03:50I think the concerns are just basically whether, you know, AI monetization and think about the AI downstream complex starts
03:58to gain enough momentum in the coming quarters to help offset the eventual deceleration that we will be seeing in
04:05terms of this sort of, you know, AI upstream and sort of CapEx build out, which is going to come.
04:10Right now, we're still sort of thinking that we're effectively just entering now year four of what should be roughly
04:16a seven-year cycle.
04:17And you're dealing with a lot of shortages, a lot of bottlenecks that are basically pushing things out.
04:23So I'm not so much worried on the demand side there, not at this point.
04:27What happens in two, three years?
04:28Do you need to start preparing something now?
04:33I think two, three years out, it's too far.
04:35There's so many things that we have to deal with before that, the Iran situation, midterms in the U.S.,
04:40you know, what happens with central banks.
04:41So I think it's a bit far.
04:42I think people are just kind of focused, sort of call the next 12 months.
04:46And the picture there looks pretty strong.
04:47I mean, I do think the bigger question is sort of further out, if you don't see enough monetization momentum
04:53building up, and if you can't sort of bridge that gap,
04:56you could then basically end up running into a little bit of a tech bubble, you know, type issue where
05:02you then basically get a bit of a burst.
05:04Do you worry about China tech actually taking, you know, what happened with DeepSeq, or do you worry even?
05:10We've had a couple of wobbles in the last couple of months where you'd see, for example, some of the
05:16software companies being slammed.
05:17Are we going to see that periodically?
05:20Look, I think it's an environment that continues to change very rapidly.
05:24So I think it's very hard to make any big, bold, high-conviction calls in terms of how the AI
05:29story and how the LLM story is going to evolve.
05:31I think U.S. is definitely going to have a handful of top players that will say very, very competitive.
05:37I do think China at the same time is making a ton of progress, right?
05:40So I think probably there is space for both of them.
05:43I wouldn't necessarily say that one sort of overtakes the other.
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