00:00Kevin Foley, co-head of Global Investment Banking here at J.P. Morgan.
00:03Kevin, good to have you with us.
00:04We talk about this optimism, yet yields are at decade highs.
00:08And historically, decade highs, yields would mean unravelling of the stock market.
00:14That hasn't happened.
00:15Well, first, good morning and thank you for joining us here.
00:19We're excited to kick off the conference and the summit.
00:22You're right.
00:23I mean, there is definitely challenges in terms of higher rates and would defy a little bit of logic around
00:27that.
00:28But I also think you have to look at where we are from a historical standpoint.
00:31Yes, we've been in decade plus lows.
00:34But where are we coming from?
00:36We're coming off all time lows.
00:38It's sort of a what is normal, normalized yields.
00:42And when you look at it, when I look at earlier in my career, yields were much higher than what
00:47we've all operated.
00:48So we've had an environment where both financial markets and from an economic perspective, a lot of businesses operated with
00:55a low rate environment.
00:57But, yeah, does a 10-year Treasury go to 5%?
01:01Sure.
01:01But I can point to earlier in my career, a 10-year Treasury was north of 7%.
01:05And we operated perfectly fine in the economy.
01:07So there could be a what is normal.
01:10It can argue that what has been in this low rate environment over the past decade plus has been more
01:15abnormal.
01:16But it is about inflation, right?
01:18It's sticky inflation.
01:19In fact, when you take a look at oil prices, according to Wells Fargo, a 1% increase in oil
01:24prices equals a five basis point hike.
01:29Yeah.
01:30That is like, we're looking at oil prices in excess of 50% from the start of the Iran war.
01:36Well, the pressure that's happening in oil and the concerns around the Middle East is a major concern from an
01:44inflationary pressure, right?
01:45When you look at it, it's not just about what the price is at the pump.
01:48When you start to look how that reverberates throughout the economy, supply chains, from fertilizers to other things that are
01:55part of everyday life for all of us,
01:57that is going to have real inflationary pressure over time, if it is sustained.
02:03What is interesting is the market continues to take an optimistic view.
02:06When you look at oil futures, they're assuming prices come down later in the year.
02:11That obviously would ease off inflationary pressures.
02:14The longer this goes on, that concern will grow about the likelihood.
02:18I think it's interesting where you had, look at the Fed expectations around Fed cuts.
02:24We came into the year with expectations we were going to get cuts in this year.
02:28Right now, the market's pricing and a 50% chance of a hike later this year.
02:32So we do definitely have some conflicting signals.
02:35Inflationary pressure is going to continue to be a risk throughout the year.
02:39Even if you get a resolution today in the Middle East, there's one, it's going to have to ramp up
02:45and come back online.
02:47And there are other inflationary pressures out there.
02:49It's not changing the appetite for deals, right?
02:52Talk to us about the deal-making activity right now around the world.
02:56Activity continues to be very strong.
02:59When you look at it, particularly the equity markets continue to see good secondary trading and the appetite and taking
03:04that optimistic view.
03:05That is translating from an IPO activity.
03:08We could see globally the most active year since we've seen in 2021.
03:13And you can make the case in the U.S., speculation about some sizable deals that could make this even
03:20an all-time high for what volumes could be this year.
03:22When you look here in Asia, we're up 50% year-over-year from ECM volumes as a whole.
03:30IPO activity will be flat year-over-year.
03:33That's our expectation.
03:35But Hong Kong, China, we expect to be up significantly.
03:38So there's a geographic mix shift into more Hong Kong, China.
03:42You look at the 10 largest IPOs year-to-date, four of them in the first quarter came out of
03:47Hong Kong, China.
03:48How much stronger for the IPO market in Hong Kong, China?
03:51What are you anticipating?
03:52You say significant.
03:53What is that?
03:54We think it's going to continue to be strong, right?
03:56When you look at the secular themes of AI, robotics, and AI.
04:01Health care?
04:01Health care.
04:02You take on AI means a lot, right?
04:04From an infrastructure standpoint, the supply chain that goes on, the energy, which get both.
04:09And now we go back to what's happening in the Middle East and oil.
04:12Energy resilience and also energy related to the needs from an AI perspective.
04:16So all of those factors are driving.
04:19There is a concentration within the market of where deals are getting done, and they largely play into those themes.
04:28And the IPO market in the U.S. as well, we heard from SpaceX, OpenAI, Anthropic.
04:32I mean, these are massive IPOs.
04:35Will that be translating into more IPO activities elsewhere in the world as well?
04:39Is that going to encourage more activity?
04:42Yeah, the IPO market, it tends to beget more activity, particularly when things trade well on the break.
04:50So if we see the continuation of things trading well on the break, that tends to encourage other issuers to
04:56come off the sidelines and getting deals done.
04:58And it feeds the appetite for more activity.
05:01You talked about the IPO market in Hong Kong.
05:04It's mainly driven by mainland companies.
05:07I mean, what will it take for us to see non-mainland companies, non-Chinese companies IPO-ing in Hong
05:13Kong?
05:13Well, I think you have to have a couple of things, right?
05:15One is going to be from just evaluation and you look at multiples, right?
05:19There's no doubt when a non-mainland land company is going to look, they're going to look across.
05:24If they've got options, they're going to look across markets.
05:28You do have to have some nexus to the region, right?
05:31When you look across markets, whether we're looking in Hong Kong or European markets or the U.S., you do
05:38have to have a nexus to the regions.
05:40So that's going to be an important part of it.
05:42I think if you get those things, you will see an increase of activity.
05:48In particular, as the education process goes through on some of these secular stories that we're talking about, the investor
05:55base becomes more and more knowledgeable about, whether it's from the robotics to AI, this makes this market more attractive.
06:02And Kevin, before we let you go, Japan also seeing lots of deal activity, yeah?
06:05Japan's been very strong.
06:07You know, you go back to another example where the 30-year is at its all-time high in there,
06:13but we continue to see good activity out there.
06:15We also think this activity is translating to good M&A activity as well.
06:20We're seeing the confidence within the C-suite of wanting to do more deals.
06:23We think bigger, more sizable deals and more activity will continue throughout the year.
06:28Obviously, there's risks, as we've talked about, and we'll see how those play out.
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