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00:00[CC may contain inaccuracies] It is in the end about yields when it comes to markets and also the divergence in the policies between the US as well as China. Yes that's right. And when you mentioned yields I think it's real yields that we need to be focused on for like the really big trade of the year which is out of long duration growth stocks and into shorter duration value stocks. So one of our highest conviction trades for the year the overweight financials and energy that is that is playing out. And we think it's got a lot further to run because we think real yields which are the 10 year maturity are about minus 60 basis points now headed to to minus 30 basis points. That's obviously coming out of the US. And again we can talk about China in more detail whether the policy is clearly going the other way at least on the nominal rate side. We talk about the surge in you. You take a take a look at 10 year yields at one point eighty seven right now. I mean put it in perspective. It is not that high still. Yeah. Again. Obviously that's way below trailing inflation. So when I've referred to real yields as referring to how you can back that out of the tips market in a like sort of textbook normal macro environment you should expect positive real yields. But we haven't had them really since since Covid head which is I guess sort of two years of negative real yields. And the point that we make about the US market in particular is that this phenomenon blew up an extraordinary overvaluation in particular in NASDAQ and parts of growth stocks. It's fascinating actually because the start of this year is playing out in the US very similarly to what happened when credit conditions tightened in our markets here in Asia. In China a year ago we saw what that did to long duration growth stocks in China starting last year. Jonathan Risher just you know I think that he was alluding to this you know the two directions of monetary policy in China and the US in fact globally we can talk about tightening monetary policy. How does that affect the way that you look at your portfolio's. Well I think one thing to watch very carefully is is the currency as the remember. And we do expect the US dollar to be broadly strong because of the tightening of real yields. In China's case they have this enormous trade surplus which is a cushion for the currency. But you know generally in Asia and the yen when you get that nominal rate kind of like gap narrowing as U.S. rates go up that does tend to put downward pressure on the currency. And it's one reason why we're not as bullish as some of our competitors on the outlook for you know the headline indices here. So Hang Seng our base case target is 25000. It had a reasonable start to the year with the financial stocks doing a lot of the heavy lifting. But one doesn't want to get carried away given the fact that the currency could come into play here about. Yeah absolutely Jonathan and I said it is isn't it. I mean it's everybody seems to kind of be bullish in the medium term on the dollar. Know it's often the case. It affects markets and everybody is part of the herd. They get it wrong. You know what you would take in all this. Yes a year ago our effects team made a made a great call to be neutral to bullish the dollar at a time when everybody expected the dollar to fall heavily last year. This year they're actually much more nuanced in what they're saying. We're not anticipating an extreme dollar strength or anything like that in parts of my coverage any way you wouldn't have such strong external trade positions as for example we have in North Asia you're already seeing currencies that have made some pretty significant declines and that poses policy dilemmas for policymakers in places like Brazil for example or South Africa. I think here in Asia we are more constructed than we were in previous cycles about India and Indonesia. And we do think that their currencies are going to be broadly stable against the US dollar and that does unlock potential for those markets to enjoy a fairly normal cyclical upswing. In China's case there's not a normal cycle. You say Singapore is a defensive play and we don't talk very much about it. And it's time to look at Singapore stocks. Yes we were bullish on it for last year and we carry that over into a strong overweight for this year. So yes it has low beta. Bear in mind the Morgan Stanley House view is the S & P 500 goes to 44 hundreds. So we definitely want low beta but it also has a lot more than that. It's got a very strong value component sector side of things. In particular some very strong banks in the index. It's got a rock solid external position running very substantial current account surpluses. And it's got this. I would characterize sort of creative approach to managing Covid which is which is going to see it well over the medium to long term. So it's nice to see that Singapore is one of the markets that is that is up year to date. Johnson also I want to get to this country how much time I'm looking at Japan. You're pretty bullish on Japan. People seem to think it's going to come back. It's always jam tomorrow to some extent. But what do you look for in Japan. I mean stocks that can be really you can see companies a lot of cash on their balance sheets. Are the real drivers essentially going to be perhaps share buybacks rather than share appreciation of the top line. Yes there is a buyback theme and a dividend payout theme that has worked quite well for investors in recent years. Again it's a market that has value characteristics and the Japanese banks for example offer a very secure dividend yields and extremely low forward piece. But I think you know for Japan it is going to be challenged least the growth parts of Japan by the sell off in NASDAQ that is underway. So one does have to be careful because there's there's obviously some parts of the market that will not do so well. Jonathan before I let you go just the risk factors out there the risk to your baseline and your targets. I think it is skewed to the downside. I do think that we are exhibiting still downward momentum in the Chinese economy and in fact the global economy at least near term has been weakened by bio biomarker. So we have to watch that because the combination of slowing growth and yet firming rate expectations is clearly starting to dislocate markets. So I think the overlay over arching environment for the first quarter is to be quite cautious and that's what we're trying to recommend.

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Morgan Stanley Is 'Bullish' on Singapore Stocks

Jonathan Garner, chief Asia and emerging-markets strategist at Morgan Stanley, discusses the outlook for stocks and currencies. He speaks with Haslinda Amin and Rishaad Salamat on "Bloomberg Markets: Asia." (Source: Bloomberg)

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