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00:00Joining us exclusively, Raymond Sagayam, managing partner at Pigtay Group and co-CEO of Pigtay Asset Management.
00:07It is one of Europe's largest privately owned financial institutions, managing around $926 billion in assets as of last September.
00:16Well, good to have you with us, Raymond.
00:17Thank you, Asalinda.
00:18So we heard from Paul, there seems to be a lot of euphoria.
00:20Acquities are up, precious metals are up, never mind what happened in Venezuela.
00:25Is there too much optimism? Is there too much complacency?
00:27How are you viewing the market right now?
00:30I think if the up sign next to those markets is a reflection of diversification away from U.S. exposure, that's a healthy sign.
00:41And it reflects a continuation of a theme, which I believe we are in the early innings of, which started last year, i.e. that U.S. exceptionalism has peaked and is starting to unwind.
00:52And if you think about the U.S. as an example, it still represents 64% of global stock exposure, yet only 25% of global output.
01:02That is a very big disconnect.
01:03And that is only corrected by 2% over the course of last year, largely as a function of what Paul already described, rallying markets outside the U.S. which have overtaken the U.S.
01:15I believe that is set to continue, and it is set to continue, driven by a desire to de-U.S. if I exposure, which is perhaps disproportionately large in U.S. assets.
01:27So North Asian markets like China, like Korea, like Japan will continue to do well.
01:33Emerging markets will continue to do well.
01:35There were outperformers last year, and they've had a great run the beginning of this year, too.
01:40I don't think there's any reason to believe that those are isolated, one-year-off performances.
01:46The thesis for emerging markets is, in my view, stronger than ever.
01:51There are so many reasons for it.
01:53Valuations alone, which have been cheap for a long time, are not just a catalyst, but they're there.
01:58Despite the rally, valuations are very interesting, particularly in emerging market equities.
02:02If you look at emerging market debt, these are economies where inflation is well under control.
02:09Average local interest rates are 5.5%.
02:12We believe there's room to cut a further 1.5%, which provides a capital upside.
02:18Growth differentials are only increasing relative to developed markets.
02:23And, of course, many of these economies, the ones you described as, Linda, are beneficiaries of the AI value chain as well.
02:30The list is very long.
02:31It's growing, and it's hugely stacked in favor of both emerging market debt and equity.
02:37And it's also about monetary policy, that divergent path between the Fed and the central banks in this part of the world.
02:44Yes, but interestingly enough, even though we are having an economic divergence,
02:50some of those monetary policy metrics are starting to converge.
02:55For example, 85% of central banks globally are looking to ease and to cut.
03:00Brazil, South Africa, many frontier markets.
03:03Of course, the Fed is potentially cutting, but arguably for different reasons.
03:07In emerging markets, they're cutting for fundamentally sound reasons,
03:11because inflation is under control and they can and should cut.
03:15Whether the Fed should continue to cut is a very debatable point.
03:19What is the one macro risk that you're keeping an eye on that perhaps investors are mispricing or not paying enough attention to?
03:27That's a good question.
03:28I can think of two, but if you really channel me to...
03:31Go with two.
03:32Okay, we'll start with one.
03:34Interest rates.
03:35I really believe that U.S. interest rates, particularly term interest rates, are very perfectly priced.
03:46Let's put it that way.
03:48Depending on the Fed choice, the Fed chair choice in May of this year,
03:53all that will do is influence the front end of the interest rate curve in the U.S.,
03:58whether that's a dove or not.
04:00What the Fed will be less in control of is term interest rates.
04:04And for me, that has profound implications on the broader economy.
04:08If we think about CapEx spending with the AI hyperscalers,
04:11they've started to shift towards debt financing.
04:14And as a result of that, they're going to be more vulnerable to term interest rates, not just policy rates.
04:20Those term interest rates are a function of the classic supply and demand.
04:23And if more and more agents worldwide are looking to de-USify both bonds and equities,
04:32surely that also potentially has implications for U.S. treasuries.
04:36And as a result, I potentially see a risk of yields breaking much higher.
04:41And of course, if they move too quickly, that can be very destabilizing for a stock market,
04:46which is now looking to be well-poised and well-positioned.
04:49How much higher for those yields?
04:51How high might they go?
04:52Well, that's difficult to predict.
04:54It's more about the velocity of that move and whether we break potentially 5% on the 10-year,
04:59which, of course, is a long way away from right now.
05:02I identify it as a tail risk and as a risk in answer to your question,
05:06which I believe is underappreciated right now,
05:09because that is something which can be less controlled by the Fed.
05:13Of course, there are twists and things which they can do on the yield curve.
05:15But ultimately, that is driven by global appetite for U.S. assets,
05:20not just risky assets, a perception of safe assets.
05:23And that remains a big question mark for me.
05:25You talk about how we're looking at a de-USification.
05:28Yes, I don't know that.
05:29Is there such a word for it?
05:30I just made that word up, but you know what I mean.
05:32But bearing in mind what you have just said,
05:34are we then looking perhaps of a de-dollarization as well?
05:38Does one come with the other, necessarily?
05:40That's a great question, because if you look at how last year played out,
05:44we had a 10% downward move in the dollar, but unscathed in U.S. assets.
05:50Not only unscathed, actually a rally of 17% in dollar terms in the S&P,
05:54and, of course, Treasury yields continuing to squeeze even lower as well.
05:58So you had a dichotomy and a divergence, rather,
06:03between the dollar move and asset class moves.
06:06What happens if this theme of diversifying away from the U.S.?
06:11Let's frame it in positive terms, actually embracing other unloved markets,
06:16like emerging market equities, like European stocks, and so on and so forth.
06:20Let's assume that continues.
06:22Now, of course, that has profound implications for a continuation of the dollar decline.
06:27But can we imagine that the dollar continues to decline
06:30without affecting the price and valuation of U.S. assets, both stocks and bonds?
06:35That's something I'm wrestling with, and I find hard to believe that it can be sustained,
06:40and I believe is one of the bigger risks in the markets.
06:43The fact that a dollar move and a continuing dollar decline
06:45can actually start to reflect and drag U.S. asset valuation down
06:49as people start to sell and diversify away.
06:52And we didn't see that last year, Haslinda.
06:54If you were to hazard a guess on how the dollar would move this year,
06:57what would be the catalyst that you're looking out for?
06:59There are several catalysts.
07:02The most recent one is what's occurred in Venezuela in the past few days.
07:07Now, on the one hand, I believe that many who are jumping to the conclusion
07:12of drawing parallels with Maduro, China and Taiwan, Russia and Ukraine,
07:17those are quite stretched.
07:20Maduro, I think many would agree, is globally recognized
07:23as potentially not the best actor.
07:26And I don't think those parallels with Taiwan and Ukraine as targets
07:30are relevant in any shape and form.
07:33What I found a little bit more concerning
07:36is the rhetoric, the narrative, which followed after the event.
07:43This talk of the Donroe Accord,
07:45which is an enhanced version of the Monroe Accord in 1823,
07:49effectively the U.S. telling Europe to butt out of U.S. affairs.
07:53Now, if that is a reflection of increasing geopolitical fragmentation,
07:58imperialism and a desire to control the Western Hemisphere,
08:02already there's been chatter about Greenland, Cuba, Mexico and so on and so forth.
08:07And now, if that continues,
08:08how can we imagine a world of asset allocators
08:12who are comfortable with that disproportionate allocation in U.S. assets?
08:16Of course, they'll maintain exposure,
08:18but the same level? Potentially not.
08:20And this is where I see that trend continuing
08:24and the DUSification starting to broaden beyond just the dollar.
08:29Do you see investment opportunities in that?
08:33Great opportunities.
08:35This is why I don't want to frame it negatively.
08:39The U.S. is always going to play a huge and central role
08:43in investment portfolios.
08:45But come back to the earlier point about 64%.
08:48Is that the right number?
08:50Think about European equities.
08:51I think European equities remain extremely cheap.
08:54They're trading at a 30% discount to the U.S.
08:56The fiscal taboo has been completely obliterated,
09:00not just broken, not just in Germany, but the rest of Europe.
09:04That spend alone is going to lift European growth,
09:07trend growth from 1.1% to 1.5%.
09:10It may not sound like a lot, Haslinda, but it is a lot for trend growth.
09:14And that, of course, means a significant re-rating in stocks.
09:16We've just talked about the stock market in Asia and other emerging markets.
09:21I think there are wonderful opportunities in both emerging market equities and bonds,
09:25European and other developed markets away from the U.S.,
09:28and potentially even in private assets,
09:31but maybe with a tilt towards European markets.
09:33I want to talk about the business, your business,
09:36as a result of what happened in Venezuela and what happened to Maduro.
09:40The Swiss government has frozen his assets and the assets of people close to him.
09:44I'm just wondering whether there's been any implications,
09:46any impact on Pigtail or any of the other wealth managers in Switzerland.
09:51No, there isn't a direct consequence of that,
09:55but it's important in this kind of environment of geopolitical fragmentation
10:00that we have a long-term perspective, right?
10:05We have been private for 220 years,
10:08and that's allowed us to see beyond the trees.
10:12When you look at the market reaction to Venezuela,
10:15as you said, Haslinda, there was euphoria.
10:17Everything was up, up, up, plus, plus, plus, greens everywhere.
10:21But if you think about the medium-term consequences, right,
10:24what does that mean with regards to regional blocks,
10:28economic blocks continuing to solidify and isolate from each other,
10:32and then the implications on markets?
10:34So I believe that we are very well positioned in Switzerland with our neutrality
10:39to make those objective and very long-term and very neutral decisions
10:43about asset allocation in that regard.
10:45And is Switzerland still well positioned
10:48to be the leading financial hub?
10:51It's seen a lot of headwinds of late,
10:53including tighter security, tighter regulatory environment.
10:57Do you see Switzerland still holding that position?
11:00I do, and I think we are in an enviable position
11:03because of our geographic position,
11:06because of our neutrality.
11:08And as I say, because of how we are structured,
11:09if I think about the Pictet Group and how we are constructed
11:12and we are structured as a private organization,
11:16we're not trying to determine the short-term trends or fads.
11:20We're trying to look long-term to the benefit of our clients.
11:23That's what we've done for 220 years,
11:25and that's what we're going to continue doing for the next 220.
11:27And what's the plan for the next 12, 24 months?
11:29Are you hiring more, given the opportunities you see,
11:32especially in this part of the world?
11:34I think the business outlook is interesting.
11:36It's bright, but it has to pivot,
11:38and it has to evolve with the evolving geopolitical
11:42and economic world that we're in.
11:44What does that translate to the Pictet?
11:46It means Asia continues to be a very, very strong focus of ours.
11:50In the past, it was servicing Europeans
11:52looking for Asian exposure.
11:54Now it's increasingly servicing our Asian wealth
11:57and asset management clients who are looking for global exposure.
12:00If I think about other megatrends,
12:02which I think are shaping our business,
12:04cybersecurity, this was the other risk, by the way,
12:07which I didn't mention earlier,
12:08something which I think is underappreciated and underestimated,
12:12but which we take extremely seriously.
12:14Already many crypto exchanges have been breached.
12:17This is a theme which I think is going to continue
12:19and could represent another tail risk.
12:21And this is also how we need to orientate our business
12:24to the benefit of clients.
12:25There are many dimensions, instant finance,
12:28whether we think about tokenization, active ETFs,
12:31and the impact of geopolitical fragmentation on asset allocation.
12:35These are top of our mind right now in how we service our clients.
12:38Is the strong Swiss franc top of your mind?
12:41How is that impacting business and profitability?
12:43How are you managing that?
12:45The strong Swiss franc is always on our mind
12:47and on the mind especially of our local Swiss investors
12:50because they find increasingly challenges
12:53in finding global opportunities
12:56once you swap it back into Swiss francs.
12:58We believe we're well positioned.
13:00What are you doing about it?
13:02How are you managing it?
13:03Agility in a multi-asset portfolio,
13:05offering a suite of private assets beyond the usual
13:09with a very strong European tilt.
13:11Alternative investments, particularly hedge fund investments,
13:14which are providing higher octane, uncorrelated returns,
13:18swapping well into Swiss francs.
13:20These are some examples.
13:21And of course, let's not forget where we started
13:23in the first place as lender emerging markets.
13:25It is different this time.
13:27There are many reasons why it's different this time.
13:29We've had that before.
13:30It is different this time.
13:31Raymond?
13:31It is, but you've heard it here.
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