Speaker 0:
join me here on Asset TV, we have El Gordon's chief economist, Simon French Simon. Thanks for being here. Always a pleasure. Very topical. Today we had China's GDP figures showed an economy that's rebounded quite strongly. Do you think this rebound is perhaps overstated? Do you think it will Peter out in the coming

Speaker 1:
months? All we've learned from Western economies that have been through this process in terms of recovery from covid restrictions is that you do get

Speaker 1:
an initial rapid recovery because there is some pent up demand, so we shouldn't be overly surprised by this data. But what I think will be interesting is to whether it will fuel inflation in the Chinese economy, whether we will see supply constraints either on the labour side or indeed, on the good side. I think it's less likely because

Speaker 1:
it's not in sync with the opening up of the rest of the world economy and therefore those pressures on supply chains that drove energy prices then shipping prices and commodity prices higher is unlikely to be driven solely by a China reopening as relevant as the world's second biggest economy is to the economic picture.

Speaker 0:
And it was only a year ago that China was called uninvestigated by quite a lot of people. I mean, what's changed?

Speaker 1:
Nothing's changed. So the geopolitical risk associated with China remains. But investors are rightly looking at alongside India, the fastest growing of the emerging, the large emerging economies and that growth profile, even if it's 5% real rather than 78% real that we may have become used to over the last 15 20 years. That's still an attractive growth rate compared to some of the Western economies, whose trend growth is

Speaker 1:
1 to 2% if you're being generous and so the attractions are still there. But I think anybody who looks at the rhetoric coming out of the United States and in and in Europe and the UK around their relationship, their trading relationship with China and some of the fears obviously with the respect to Taiwan the tensions on the Taiwan Strait would say that any investment that's trying to tap into that growth potential

Speaker 1:
also has a lot of geopolitical risk to come with

Speaker 0:
it and going back to that economic cycle cycle being thrown out of kilter. And the zero covid policy was fairly obstinate, and there wasn't a lot of a lot of wiggle room. Could that then give investors a good hedge, even a good diversify to include some China in their portfolio?

Speaker 1:
Well, I do think that's an excellent question, because what you've got is

Speaker 1:
historically quite a converge economic cycle across all pretty much all the major economies. And then when you get as virtue, although it doesn't feel very virtuous, does it the virtue of the pandemic, a very different timing of the economic cycle, the credit cycle, the financial cycle? Is there a natural hedge that you would normally get in the economic cycles that have emerged?

Speaker 1:
I think that's a very, very fair point. And if you are looking at diversification of economic cycles, yes, the fact that China's recovery from covid restrictions, particularly in consumer services, the type of things that we know there is pent up demand for that may well be where investors want to get their exposure. If they're looking at macro cycles and a rare opportunity to get invested in a big market

Speaker 1:
that is out of kilter with the rest of particularly the western economies

Speaker 0:
and just I don't want to dwell on this too much. But the banking crisis Do you think investors will be looking at emerging market countries with a sort of S V B slight tint to it.

Speaker 1:
I think a few weeks on from the SBS V b crisis Or or be perhaps maybe crisis is the wrong word. Maybe the S V b failure. Because I think any post mortem of S V B would say their risk management in terms of the stickiness of their deposits, the sector exposure and particularly their interest rate hedging suggests that they were poor risk managers.

Speaker 1:
Uh, perhaps if you're being a little less critical, you would say they're a little bit lazy in terms of getting up to speed with a very different curve of, uh, the interest rate curve going forward. Um, what it tells you, though, is in terms of its read across to emerging markets is,

Speaker 1:
there's likely to be some complacency in other institutions around the world. Some laziness, some poor risk management, because 12 13 years of near zero interest rates and in the emerging markets, interest rates being compressed down because of that widespread hunt for yield will have brought about some bad behaviours. Heim and Minsky, the celebrated US economist, talked about Minsky moments when

Speaker 1:
stability and we had a degree of stability from low interest rates generates its own instability. I think it needs to be seen in that through that lens. And therefore there are undoubtedly going to be institutions in emerging markets who are going to fall into the same complacent trap that seem to be the the death knell for S V. B.

Speaker 0:
Simon, as always. Thank you very much. My

Speaker 1:
pleasure.