What the Global Macro Means for Investors with MacroVisor's Ayesha Tariq - 7investing 7investing
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What the Global Macro Means for Investors with MacroVisor’s Ayesha Tariq

7investing CEO Simon Erickson speaks with Ayesha Tariq about the global macroeconomy.

August 10, 2023 – By Simon Erickson

There’s certainly no shortage of news and headlines about the American economy these days.

This morning’s announcement of 3.2% inflation in July is sending stocks higher across-the-boards. Investors are excited that the Fed’s aggressive rate hikes from the past eighteen months may finally be showing signs of getting inflation back in-check. If the Fed were to see the progress it needs to see and take a more dovish stance toward the economy, it could lead to economic growth and stock market appreciation.

But the United States is also just one country, and “investing” spans across the entire globe.

How is the rest of the world handling their own fiscal and monetary policies? Are other countries similarly increasing rates in attempts to tame inflation? Are there specific regions we should be more closely watching, which might provide superior economic growth or investing opportunities?

To answer those questions, we’ve brought in an expert. 7investing CEO Simon Erickson recently spoke with Ayesha Tariq, who is the co-founder of MacroVisor. Based in Dubai, Ayesha has spent her professional career analyzing financial markets all across the globe.

In the first part of their conversation, Simon asks Ayesha her thoughts on the most important things to watch when it comes to the global macro. She also shares her thoughts on what she expects the Fed and Jerome Powell will do next in 2023.

The two then discuss the yield curve, including its dramatic inversion of the past year. Ayesha points out that when the inversion stops and when the yield curve begins to steepen is the most dangerous macroeconomic predictor of an upcoming recession.

Ayesha then shares her outlook on the stock market and equities. Healthcare and consumer defensive sectors could be opportunities to consider, as it’s likely that volatility will continue in the second half of the year.

In the second part of the program, Simon and Ayesha begin discussing individual countries and regions. They first cover Japan, who is actually seeing healthy inflation that is improving wages and steadily growing its GDP. They then turn to Europe, who is stuck in a zero-growth funk that’s proven difficult to get out of. They then look at Brazil, who’s finally cutting its 13% nominal interest rates and is highly exposed to oil and commodities. And they finally discuss China, whose ambiguous policies and tarnished international trade relationships have led its consumers to their highest rate of personal savings in the past half decade.

This was a delightful and insightful conversation about the world’s macro status quo and its impact on investing.

Publicly-traded companies mentioned in this podcast include Coca Cola, LVMH, McDonald’s, MercadoLibre, Mercedes-Benz, Nu Holdings, Pepsi, Petrobras, Pinduoduo, and StoneCo. 7investing’s advisors and/or its guests may have positions in the companies that are mentioned.

Don’t miss out on future conversations like this! 7investing will be publishing upcoming interviews with the CEOs of PubMatic, Rocket Lab, and more. Join 7investing’s free email list to get our podcasts and investing insights delivered directly to your Inbox.


Simon Erickson  00:01

Hello, everyone, and welcome to this edition of our 7investing podcast where it’s our mission to empower you to invest in your future. You can learn more about our long term investing approach and see all seven of our monthly stock market recommendations each and every month at 7investing.com. My name is Simon Erickson. I’m very excited to welcome my guest to the program today. Ayesha Tariq is the co founder of the macro visor group. She’s based in Dubai as got a very, very good feel on what’s going on internationally, which is going to introduce a lot of our American based investors to a different global opportunity.

Ayesha, it’s really nice to have you part of the program. Thanks for being on the 7investing podcast.


Ayesha Tariq  00:42

Thank you, Simon. Thanks for having me. I mean, this is great. I followed you for a long time I follow what you do. I think you have an excellent business model. It’s so interesting seven picks every month. So I love it. In my heart, I’m still an analyst for stocks, right. So I absolutely love it.


Simon Erickson  01:02

I’ve been a fan of yours for years as well, too. We’ve chatted for several years as well. It’s really nice to have you on the program here.

Today, we’ll talk a little bit about stocks, I do want to chat about a couple companies that are on your radar that you’re interested in. But let’s start kind of 10,000 foot level, right? Macro visor is named so because you guys have a feel on what’s going on in the macro economy out there. And it’s not even just a US based perspective, but a truly global perspective. First and foremost, can you tell me a little bit about your company, why you’ve started and co founded this, and what you really hope to achieve out of it.


Ayesha Tariq  01:33

Right? So this company is co founded with my partner Mark, it’s for me, him as you know him on Twitter. Now, the both of us, we sort of loved tracking all the data that came out of the macro, right. And I started off writing a newsletter. And I saw that, you know, there is an audience for the macro as well. And what was most interesting was not a lot of people actually know what goes on behind the data. So I know for the last one year, macro has become very important. Everybody’s looking at the macro, everybody’s looking at the jobs number. But you know, two years ago, two, two and a half years ago, when I started writing, not a lot of people understood what went into these job numbers, right? To be fair, neither today, okay, because we look at the numbers, we look at the headlines, but we don’t look at the details. So I started looking at the details.

And part of my learning process has always been to try and explain things to other people, that’s a good way to learn, right. So sometimes I’ll sit my daughter down even and try and explain things to her, whether she understands it fully or not. It’s just my tickets it. But you know, I enjoyed doing this. I love teaching, I’ve always loved teaching, even when I was in banking, I would train all the junior associates and stuff like that. So you know, I started to dig into the data, learn myself and whatever I had learned during the week, I would write about it on the weekend. And she’s concerning the macro data. So pick one data point and you know, sort of go into it.

And then I met him on Twitter, and I saw that both of us have this real, you know, love for, you know, looking at the macro data and what’s going on. And it wasn’t just the US, obviously, the US is the best because they have the most detailed set of data. Globally, you don’t have all that detail. But it’s still a lot of fun to look at how markets are doing all over the world, right? And so we decided, You know what, let’s bring this to a larger audience. And let’s make it fully macro focused, but macro off the world. We do cover companies, we do cover earnings as well because they do move the market. But at the end of the day, we like to look at the overall picture.


Simon Erickson  03:53

Just to be clear, Ayesha I have you here in person. Or at least on Zoom in person. Mayhem is a human being, right? He is not a humanoid AI robot. Is that correct?


Ayesha Tariq  04:02

Well, he’s part human being.


Simon Erickson  04:04

Okay, just to confirm, just wanted to make sure I understood.

Let’s double click on a couple of the data behind the numbers, like you just mentioned, because we’ve seen a lot of shocks to the system in the last couple of years we had, we had COVID. And then that kind of put a lot of free money into the economy. And then now we’ve seen interest rates rising incredibly quickly.

What is your broad based take on what is going on with the global macro? And what are a couple of things we really should be watching.


Ayesha Tariq  04:31

So for one thing, obviously, we’re all watching interest rates, right, and how they’re changing in different parts of the world. So let’s take for example, the developed markets versus the emerging market. Now, surprisingly, the emerging markets actually started hiking rates much sooner than the developed markets. I think it was because inflation started to go up higher in the emerging markets. So just take a step back, emerging market It’s time to be more sensitive to, you know, the outside world. So inflation numbers, the dollar being strong and stuff like that, because obviously, they aren’t $1 based economy. So when prices started to go up, and particularly oil prices, commodity prices, this kind of hit the emerging markets much harder than they hit the developed markets. The pace at which inflation went up in the developed markets were actually slightly slower than the emerging markets. And the emerging markets are familiar with inflation. They’ve seen it, we’ve had certain levels of inflation in the emerging world, right?

So I come from an emerging market country, I come from Bangladesh, we’ve always seen a certain level of inflation, it’s never been 2%. Right. So in that context, they knew what to do. They knew how to respond. And they knew that we they needed to hike rates, and they needed to hike rates fast. Where the US in the eurozone and the UK are concerned, they’ve been having such low rates for such a long time. And each have their own issues. Obviously, the US was a little bit scared, I think of hiking too soon because of what happened in 2018 2019. So there’s always this recency bias, right? With the Eurozone, they have been at negative rates for so long, with the UK negative rates, zero floor for so long, that, you know, coming out of this era of such low rates, it took some guts. And they didn’t really realize that inflation would, you know, take hold so swiftly and go up so quickly. So by the time they started to hike the rates, it was already too late. Inflation had taken hold quite a bit. Like, if you look at the UK, inflation is still going up there. It’s so we it’s we mean, the US and I like to say we as well, because the Middle East, most of us, we are pegged to the dollar. So even our interest rates move in tandem with the US. And all these countries were pegged to the dollar plus the US. We we’ve seen inflation sort of become disinflation now, right, the pace is slowing, we are seeing the curve turn down. However, in the UK, we’re still seeing the curve, you know, on an upward trajectory, like turning down here and there, but you know, nothing significant.

So, at the end of the day, I think this interest rate regime, in each of these countries, they dictate a lot of policies, they have a big impact on the stock market as well. We’ve seen it in the last two days, we’ve seen what’s happened with the interest rate and what happened with the stock market. As soon as we started to see the long end of the curve start to go up. We see stocks take a tumble. So while it works in different ways, there is still a very massive correlation between stocks and interest rates. So that’s something that we’re definitely watching all across the world.


Simon Erickson  08:20

I think that if there’s perhaps one man in America that is under the microscope all the time, it’s Jerome Powell, it seems like there he is always stuck between a rock and a hard place. If you know, there’s one part that people are saying, Oh, you’ve pushed interest rates up way too high, you know, this is just are they ever going to stop? But then on the other hand, you know, he really has said out there that he wants to target 2% inflation, which has been very elusive and very challenging. What do you think is in the Feds playbook going forward? Is he going to continue to push to get inflation down to 2%? And do whatever it takes? Or is it time that maybe we’ve we’ve raised rates enough, and we’re going to slow down a little bit here.


Ayesha Tariq  08:58

So my personal view is that we still have one more quiver. one more arrow in the quiver for all these three central banks, I think maybe for the UK, too. So I see one more hike for the Fed one more hike for the Eurozone, and two more hikes for the UK. I know the emerging markets have already started to ease a little bit we saw Chile cut rates, we saw Brazil cut rates, but with the developed markets, just as I said inflation is still pretty high. And I am a little wary of what will happen in the next two months. I think we will see a little bit of a surge in inflation for two reasons. One is because we are seeing commodity prices and energy prices go up and then we are going to be out of the bass effects. So basically the comparisons become you know I want to say easier, but what we will see is not a steep decline in inflation. So we might see inflation remain a little sticky. The other issue with the US, unfortunately, is, the sensitivity to interest rates is a little low. What I mean by this is that we’ve seen technology, we’ve seen a lot of industries that have moved away from the manufacturing side. So we have more service based industries in the US, more technology, more less, capex, heavy, you know, issues, and even the technology companies that are investing in capex, let’s say, for example, Apple or Microsoft, these guys have deep pockets. So for them interest rates and their big companies, they’re extremely well rated.

So even for them, even interest rates going up really doesn’t affect them as such, right, it doesn’t hit them, the way it hits smaller companies, the way it hits manufacturing companies, we’re seeing the manufacturing data come in horrible. And so this is why it’s taking much longer for the US to be affected by the higher interest rates, their sensitivity is lower. And the one industry that should have actually been very sensitive to interest rates, which is housing. Unfortunately, we have another problem on that side. If you want to talk about it.


Simon Erickson  11:31

Certainly, yeah, let’s keep going. What’s the other problem?


Ayesha Tariq  11:33

So the problem with the housing market is a lack of supply. So we’ve been tracking, you know, the supply of homes, new homes and existing homes. So I looked at the data about two, three weeks back, but the supply of existing homes was less than three months. So unfortunately, what’s happened is people have locked in very low rates of mortgage mortgages over the last two, three years. And therefore they don’t want to move out of their homes, because they know that if they go to buy a new home right now and sell their old home, they’re going to be in trouble, because they’re going to have to take a mortgage at a much higher rate. So people are not moving, there’s no new supply of housing with a mortgage rates going up the way they did, Home Builders started to pull back a little, you know, so the home industry actually did slow down a lot. But now, because it’s flown slowed down so much, we’ve come to another set of problems, which is driving up home prices. And so home builders are back to building again, and we’re seeing construction activity there and all of that. So it’s been it’s as if the home cycle got compressed, you know, and it went through the cycle very, very quickly. And now it’s sort of become they’re becoming insensitive to the interest rate rises because of the supply and demand issue.


Simon Erickson  12:57

That makes a lot of sense. Aisha, I’d like to take the next chapter of this, all of that being used as context to talk about the yield curve. Because this is certainly something that has been a lot in the news controversial lately, the yield curve has inverted, or the two year Treasury is paying higher than the 10 year treasury and a lot of people are quick to point out that had has historically been predictive of a recession of a negative GDP for at least six months of a period. And that’s got a lot of people concerned right now, right? We don’t like to hear about recessions. It certainly is bad when the economy contracts. But you’ve also said I’ve seen several of your interviews on Bloomberg, you have a lot of opinions on the yield curve. And also the let me let me just leave it at that. What are your thoughts on the yield curve right now? And how do you interpret it?


Ayesha Tariq  13:42

Right. So interestingly enough, I pointed out coming inversion of the yield curve back in October 2021. Okay, and I remember this only because I had written about it for Halloween as something being very scary and spooky.


Simon Erickson  13:58

Terrifying. Kids’ costume of the yield curve is the most scariest one you’ll see.


Ayesha Tariq  14:03

Little did I know I was going to be right. I didn’t want to be right, because this is not something you really want to be right on. And okay, so it inverted. And we thought that that’s it. It’ll inverted maybe a month, two months, maybe and then we’ll be out of it. But unfortunately, we’re seeing one of the longest running inversions in the yield curve. In, I think ever, I doubt even in the 80s, we had such a long running inversion. So, unfortunately, while the yield curve is inverted, it’s not such a bad thing. Unfortunately, the bad thing comes when the yield curve starts to steep and so when you invert, and then steepen that’s when the problem starts. So as you just saw, so I tracked the yield curve every morning even in my daily morning news. I have a morning news To that I send out to everyone and it’s free to read obviously. And we track the yield curve there, I track it every morning. And for the last two days, what we’re seeing is that the yield curve is deepening. So when you see it steep in stocks start to go down. As long as the yield curve remains inverted stocks can actually rally. And that’s what we’ve seen over the last six months, right, we’ve seen a massive rally, even with the inverted yield curve. Towards the beginning of the inversion, I believe there was a lot of fear, as you rightly pointed out, that a recession may be coming. But there’s nothing that says that stocks can rally while the yield curve remains inverted. So I think we need to start worrying. When the inversion stops when the yield curve starts to steepen, that’s when the economy is actually going into a recession, or it’s like an early recession, period.


Simon Erickson  15:57

When you’re saying steepening, are you saying this might be the Fed cutting rates or trying to relax policy a little bit? Because it’s in response to deteriorating macro? Is that what you’re saying, when you say it’s steepening?


Ayesha Tariq  16:09

It could be either. So it could be that the Fed cuts rates, so the the two year rate comes down, and the the tenure stays where it is so then the curve steepens. Or it could be the other way around, where we see tenure yields just go up. Right, and because people are, don’t have a demand for it. So the whole point is, you know, we will see this happen. And when this does happen, we will see some pain, which is why I still do think that we will see correction and stocks, we are not going to go on a 10 year bull market from here. It we will see a pullback, which will be great actually, in my opinion, because I think we will get a great buying opportunity. I think in the last six months, the way the market has moved. We’ve missed a lot of the opportunities because we were wondering what’s happening? Is it going to happen? Is it not going to happen? Me personally, I know that I have missed out on some great companies, because I was you know, wondering, are we going to tank I mean, I don’t even know whether we’re going to tank tomorrow, whether recession is coming. It’s a difficult situation, that I think once we get that situation and we get, you know, a meaningful pullback, that would be a great point for all of us to buy stocks at a great price to hold for a while, you know the investment type stuff that you do.


Simon Erickson  17:43

We’re here with Ayesha Tariq. She is the co founder of macro visor, we’re just wrapping up the first section of our program. We’ve taken a 20,000 foot look at the macro, we’re going to start talking about stock market opportunities. And part two, come right back as we continue our 7investing podcast.

And we’re back, welcome back to our 7investing Podcast. I’m here with Ayesha Tariq, the co founder of macro visor, you can follow her work at macrovisor.com for insight into the global macro economy. I should we just chatted about kind of what’s going on higher level out there. We talked about the yield curve, we talked about inflation.

Let’s talk about now how this is going to impact the stock market. And we certainly know that rising interest rates all other things equal means it’s a higher discount rate that we’re discounting back future cash flows for equities. And of course, that’s bad for stock prices, that means they’re worth less in present value today. It’s generally very negative for stocks when interest rates go up. You did say that there’s a possibility of a correction coming up here. There’s a steepening of the yield curve is a lot of macro factors that are not very favorable for stocks. But then again, stocks as a term is a very broad based term. There’s certainly different pockets of the market that will be impacted more by rising rates and all the macro things that you are seeing than others.

What’s your outlook on the stock market? Are there pockets that you see opportunities and others that you’re avoiding right now?


Ayesha Tariq  19:10

Oh, absolutely. So even through all of this, I still do like stocks. I mean, that’s that’s what I look at. I know there are other asset classes that we can look at. And we do we do look at commodities as well. We look at you know, bonds, but my focus is still stocks. For now, look, I would really, really look at the defensive sectors, because I still think that there’s some juice left there. For example, healthcare is one that I’ve been talking about and in healthcare, I think the sector I like the best is med tech. One of the reasons that I like med tech is because, you know, I’m sure everybody’s heard this story already. But there’s been a lot of pent up demand. And now we see the biggest problem with the healthcare sector was a lack of Have people. So we didn’t have workers in the healthcare sector people were out of jobs because they were scared of COVID. Or because things had been cut down, there was no demand, number of factors, but at least now we’re seeing that improve. So with every job, data that comes out, like what we saw today, you’ll see the healthcare number is actually improving every month. And that’s great for the healthcare sector. So and people are now going back to get their elective surgeries, and they’re going back to get the treatments that they’ve postponed. And you know, what happens when you postpone treatment, things just get worse, and you know, stuff that could have been non surgical, unfortunately, become surgical. And so we do see some demand coming into the healthcare sector. And I think med tech is one that can benefit from it.

I also think there’s still some pricing power left in certain defensives. For example, we saw Pepsi, we saw Coke, both of them did really well, we saw McDonald’s, they just smashed earnings they did so well. So I think some of these companies that are less macro intensive in the sense that you will still eat McDonald’s. Right. And, you know, it’s, it’s just a company that people will still go to, and in fact, will probably go to more in an environment where I can spend on something that’s like, extremely expensive, right, I still want to eat out. But I can spend like $200 for a meal, or I shouldn’t be spending $200 for a meal. So hey, let’s go to McDonald’s. It’s familiar. It’s good. It’s you know, so I think these are the kinds of companies that we should look for at the moment. And, you know, try and get some earnings in as much as we can until we actually see that meaningful pullback, where we can invest again.


Simon Erickson  21:57

Let’s open this up and start talking about some other countries around the globe.

I’m based here in Texas in the United States, we get hurricanes, you’re out in Dubai, you guys get sandstorms both equally terrible. But you know, your own unique challenges. Let’s talk about different companies are not all responding to this in the same way. We chat a lot about the United States here I share but you follow a lot of different companies or countries. Excuse me, also, how about another developed economy? Japan, I know this is one of the you have an informed opinion on? How is Japan handling the current macro?


Ayesha Tariq  22:26

So it’s very interesting. I love how interesting the macro is in Japan, I mean, things are moving in a very different direction. From what we’ve seen in the last 30 years. You know, it’s totally different. Now. The stock market is actually doing very well there. And we are bullish on the stock market and Japan. So more than half their companies are trading at less than book value. Did you know that? Wow, that’s, yeah, that’s insane. So cheap. And so there’s a lot of value there. Right. And with the new policies with the new central bank governor, we might, we might see some change in policies, but he’s an academic. So he’s taking things very slowly, they did announce some changes, which would mean yields will go up. So interest rates rising bad for the bad for stocks, however, they are putting in policies, so they are still buying bonds there to make sure that this doesn’t happen very suddenly. So what he basically said is, they would allow the yield to go to 1%. Instead, they started buying as soon as they you hit 60 basis points, which is 0.6%. So what he’s trying to do is it’s trying to measure and make sure that the impact is measured, right. And they’re seeing inflation now for the first time in three decades. Inflation is good for stocks. We know this, and the kind of inflation that he wants to see before he changes any kind of policies. He wants to see this inflation take hold in a way that improves wages, and it improves consumption in the economy. Again, so consumption improving would mean better GDP better for stocks, right? So I think that the policies that they’re instituting now, they’re good for the country, as a whole. And anything that’s good for the country is good for companies and is good for the stock market. Right? So they’re trying to help these companies now try and do much better. And I still think that, as you rightly pointed out, very cheap, they’re still very cheap, but I would just caution against using the ETFs for exposure to the economy, so there is the ETF, which is ew J however, this is not currency hedged. So I would caution against using any international ETF that is not currency hedged because then we know the Japanese currency could come down, we are not bullish on the currency, we are actually bearish on the currency. So, if the currency comes down, it brings the ETF down a little bit, you know, so, you will get a muted response, there are hedged ETFs like, I want to see H e, w j and dx j, I believe these are the two hedged ETFs. So, always try to be hedged or look at the currency before you’re going into a country.


Simon Erickson  25:34

Certainly, and one of the biggest trends that Japan is privy to right now, and it’s really capitalizing on is been AI and hardware and cloud computing, a lot of the components that are going into semiconductors are actually manufactured in Japan, as you mentioned, consumption rising wages growing certainly good as a lot of tailwinds. In the semiconductor sector. That’s pretty leveraged to Japan. I chatted with one of congests analysts, Richard Kay, about Japan, who is equally as enthusiastic about the country. They are based in Paris, European asset manager, I know that you have an opinion about a lot of Europe as well. What’s your take on Europe? How are they handling the macro right now?


Ayesha Tariq  26:15

So I think I think Europe is in for something, and they know it. So I was watching the ECB press conference after they hiked rates, I was watching Christie in the garden. She was very clear. She knows that, you know, European industries are interest rate sensitive, they’re sensitive to, you know, energy prices, as well. And we know energy prices are going up. And she made it very clear that, you know, there will be some slowdown in growth. And we’ve seen that with Europe, so they’re barely barely above the 0% mark, where the Eurozone is concerned. Germany’s at zero. France is growing its debt, they got downgraded as well. So they’re, I think Europe is still a place to be cautious. This time earnings are coming out a little depressed as well. Not as great as last quarter banks are doing fine, obviously, because we have the higher interest rate. But companies industrials, they are suffering a little bit. Having said that, I think if we could see a point where this actually takes these companies down. So we might have some great buying opportunities in LVMH in Mercedes, Rolls Royce, so some solid solid companies in Europe, right, Airbus. And I think, you know, that would be a good time to buy.


Simon Erickson  27:47

I agree. Ayesha, you know, it’s interesting to see you mentioned a lot of these German automakers how much they have embraced electric vehicles and are rolling out their next generation, Evie lines, we’ve seen half a trillion dollars of capital commitments already from all the automakers a lot from Tesla, but certainly a lot from those European companies that you mentioned there, too. Let’s, let’s change gears, I want to talk about two more countries. This is getting a little bit out of the developed world and into some some spicier international markets, one of which being Brazil, Brazil has been a controversial one here. And in recent years, what’s your thoughts on that country right now.


Ayesha Tariq  28:22

So interesting. They just cut rates, they had the rate decision on Wednesday night, I want to say, Wednesday evening for you in the US. So they their rate is I think now at 13% 13%. And they cut rates by 50 basis points. They were supposed to cut rates by 25. But they started by 50. So people were a little surprised at how aggressive they were at cutting rates, but their policies that like the policies that they talked about. On the other hand, they talked about, you know, keeping rates high. So even though they’re cutting, they’re not going to go back to the five 6% rate. What they are trying to say is that we do and we do believe there will be more rate cuts this year for them, but I think they will still keep them at a sufficiently restricted level, as the central bankers like to put it right. So I think their rates might settle somewhere around eight 9%. They’ve done well on inflation very well on inflation. And some commodity prices going up is actually good for them as well. But with Brazil, I think there are two things that I would like to point out. One is these effects of El Nino. So the weather effects that affects their country a lot because they do have you know, commodity supplies. So that’s something that we need to keep an eye on. The second thing is obviously oil prices. And I talked about oil prices because the largest holding in their ETF in the Brazilian ETF that we use. Aw said basically that you said I think Um, that one. The biggest holding is Petrobras. And Petrobras is the biggest oil company for them, right? The state oil company. So it moves a lot with oil prices. So that’s something that we need to keep an eye on. Also, sometimes, like, for example, they cut rates. But the ETF itself fell, because oil prices were down that day. So something to just keep in mind when you’re investing in Brazil, or through these ETFs.


Simon Erickson  30:29

I do want to ask you one more thing about Brazil, I know that you have a banking background and Brazil’s financial services industry, or sector is kind of fascinating to me, it’s been so regulated, and you’ve just had these mega banks. For so many decades, it seems like there’s a push, at least from a lot of companies to kind of democratize banking. Right? You see the new banks out there. The Mercado Libre is out there, the stone coast, they want to make it more accessible. For the for the mass, the mass population. Do you have thoughts on this transition? Is this going well, for Brazil? Or they’re kind of growing pains? What are your thoughts on financial services?


Ayesha Tariq  31:04

So I think there are growing pains, obviously, and they are not probably going to go mass scale like, you know, developed countries. I think with these kinds of countries, in general, not just Brazil. Politics matters a lot. Obviously, they brought back their old leader. And he has his own ideas. But he’s, my understanding is he’s trying to be a man of the people. So he might actually open up these policies a lot more than you know, the previous president. So I think, as you rightly pointed out, the regulations are very important here, right. So it’s not for lack of people wanting it. And it’s not for lack of people trying to open these kinds of businesses. I think it’s all got to do with regulations. I know from personal experience, emerging markets always have tighter regulations on the banking sector, because of foreign currency reserves, right? We can’t have free flow of money in and out of the country, because we need to make sure that foreign currency reserves are kept at a certain level. With Brazil, it’s easier, they do have a lot of foreign currency reserves compared to most other emerging markets. But at the same time, it’s still a weaker currency in many respects, and they still need to make sure that there is some regulation around the free flow of, you know, international money.


Simon Erickson  32:34

That’s fantastic. And then let’s get one more country here. You know, we’ve had some good ones. But I think this conversation would not be complete without us at least talking about China. Certainly now the second most populous country in the world, India has surpassed it here recently, which is interesting. But China certainly pulls its weight in affecting the global markets. Controversial one geopolitical risks a lot of going on in China. But what’s your take on the response to the macro right now in China?


Ayesha Tariq  32:59

So ambiguous, China has been so ambiguous for the last for always, I guess. But over the last one, one and a half months, I want to say they’ve declared so many policies in support of, you know, consumption in support of the property market in support of so many things. Unfortunately, we haven’t seen implementation. So they’re talking about all the supportive policies, but they seem to be just headlines. We haven’t seen tangible, you know, measures being taken to say that, okay, we’re cutting these rates are increasing those rates, or we’re pumping this amount of money in or we’re doing that. So I think we need to see a little bit more of this. What is not ambiguous about China right now is their growth. Right? So their GDP growth has been slashed to, I want to say five and a half to 6%, most of the banks are seeing five, five and a half percent. Now, you might tell me, Wow, that’s still five and a half percent. True. But China’s had a GDP growth of close to 9%. For the last 30 years. I looked at it, the average GDP growth is close to 9%. So for a country like that 5% is, you know, really low. It’s like low growth for them. So in that respect, I think they really need policies to jumpstart the economy, particularly in certain sectors. One is consumption. So I’ll just give you like four quick points about what’s happening there. We thought they’re going to spend a lot right after the COVID reopen reopening and all of that, unfortunately, people got scared. They got scared first they were scared because COVID was still going around. Then they got scared because of all the negative sentiment in the country. Okay, so There was so much consumer confidence has been, you know, declining. And so what people started to do is they started to save more, right now they have the highest savings rate that they’ve had in the last five years. So there, it’s not like they don’t have the money, they have the money for consumption, but they are not using it. So we need to put, we need to see some policies where this money comes out of the bank and actually is used to consume goods. The other problem they’re having is their local governments have a huge debt burden. And interest rates are too high for them. So this, it’s a, it’s a little bit of a complicated situation. But suffice to say that debt burden needs to be restructured or refinanced in such a way that that that burden can be met by the local government. Otherwise, it’s like the local governments going bankrupt, you know, so they can spend more. As soon as you start spending more in the local governments, you will get jobs, you hire people, right? It’s always good when there’s activity in the country. So overall, the activity in the country is coming down. You can employment is going up, the youth is not employed. And you know, that young people need to be employed, you can just have a really high rate of youth unemployment and expect productivity. So you have low productivity, because have high youth unemployment. And then finally, you have the geopolitical situation. They have the property market as well, everybody knows about the property market. So that’s another problem. Problem as well. So just before we go into the geopolitical, I just want to talk about the property market very quickly. So they their property market is in a situation where people are not buying. And for the longest time, their government said housing is for living, not for speculating. They have pulled that away now. So now they want people to buy houses, because people are not buying houses, again, people are saving, but not investing, not buying houses. And so there is a big, big depression in the property market there. The property companies who are some of the biggest companies in the world, are on the brink of default on their bonds and on their debt, because people are not buying properties. So for problems internally in the country, and then you have the fifth problem, which is the geopolitical tension, right? We even today, I saw some news, which said that, you know, the US is thinking about not investing in China, or not letting investments, you know, people invest in China from the US. So all of these things do matter, because it’s as much as people don’t want to take sides. I think some people do countries do. And you know, if the US is not friendly with China, even if people don’t support the US, let’s say they just want to be cautious, and they’ll stay away. Right? So what do people do when you see a conflict, sometimes if you see like two people fighting, you walk away, because you just don’t want to be part of that fight. You don’t know what’s going on, you don’t know what’s happening. And you just think like, you know what, let them resolve themselves. I’m just gonna take a step back. So I think all of these things combined, are actually pulling down China’s growth much more than we have anticipated. I’m still very cautious in China, I know people that started investing again, we have seen flows in the last few weeks. If you look at the banks, you know, they show you the fund flows into China. So you will see the fund flows are increasing. But I think for individuals like us, we should be very, very cautious. I think we should still be careful about the names that we choose. Because just put China on a chart. So if you have TradingView just put China FFT on a chart, or put the Hang Seng on a chart, just, you know, zoom out and look at what’s happening. You have three days of up two days of down three days. Like it’s unpredictable. Every three to two days, you get some news from the government that says we are stimulating the economy, no implementation, just news, right? Just words. And then so people get like all gung ho device stuff and all of that. And then two days later, they realize, oh, no, this is not happening. And then they come. So it’s a disaster. And so for now, I think until we can get a good handle about what’s going on there internally, and they actually start implementing these policies. I would not think of going in just because they’re cheap. I think


Simon Erickson  40:07

that was incredibly insightful. I think cautious is the right word, because China has got a trust issue right now. Everything that you just mentioned is certainly true. You look at the the opportunities versus the risks, the opportunities are decreasing. You know, it’s not 9% growth, we’re more now it’s five and a half percent growth. While those risks seem to be increasing, too, right? The relationship with Taiwan, the IP protections we’ve certainly seen years ago, everyone was flooding China to do manufacturing, especially in semiconductors tech industry. And now a lot of that production is actually moving to Southeast Asia, other countries, Taiwan, Vietnam, other places, because between zero COVID and government, sporadic policy, erratic policies, excuse me, has scared a lot of manufacturing out of that, and then also biotech either other industries to help with health care, China wanted to completely revitalize this healthcare industry. It’s just very interesting to see the lack of trust and how that’s impacted not only at the grander scale, but individual company investment of the country. Go ahead. I think you wanted to add something there too, you


Ayesha Tariq  41:07

know, so, you’re right, because, you know, even in their own private sector, the government has been unfriendly, for example, with digital transformation. You know, this is yet another reason why youth unemployment is so high because these youths they don’t want to work in the fields. They don’t want to work industrial jobs, they want to work digital high flying, you know, and maybe advertising jobs or you know, digital jobs, tech jobs. And unfortunately, this industry in including FinTech, by the way you remember what happened with the an IPO, they’ve all been pushed down. So until and unless they start to be more friendly towards some of these more advanced, you know, industries. I think we’re in for some troubles. There are like, four or five companies that are tech tech companies and still trying to get through. But and they’re good companies, like, for example, there’s a company in Georgia who, maybe I’m pronouncing it wrong, but it’s PDD is the ticker symbol. It’s a great company, they’re doing great stuff. I really liked this company, but I’m afraid, you know, because every two days, there’s some kind of policy coming out that stops them from doing what they should be doing or want to do, or, you know, to enable them to grow. So at the end of the day, I think, you know, it’s tough to get a handle on China. If we do think about investing, we need to be cautious. So let’s not be all gung ho. I think that’s great advice.


Simon Erickson  42:51

And to recap, this was incredibly insightful, but can’t be around the world that we did there a recap, caution with China, let’s not be gung ho as i She says, we looked at Brazil and we said, you know, it’s very exposed to commodity and oil, even though it is cutting rates now back then 13%, a much higher interest rate than we’re used to here in developed markets. We talked about Europe, I should pointed out 0% GDP growth for a lot of European countries, and a really pretty optimistic portrait for Japan, which is investing in seeing a little bit of inflation that might support wage growth. Anything else I’m missing there? iShares. We kind of do this, this around the world recap of the macro.


Ayesha Tariq  43:28

So, UK, we are a little bearish on the UK still, because as I said they are hiking rates still. Australia is on pause. But again, Australia is another country where inflation still remains significantly high. So I would be cautious with them where we are a little bearish on Australia. We are bullish on some of the other emerging market countries like Philippines, Indonesia. These countries are doing well. Vietnam, somewhere in between, we’re still neutral on Vietnam, we’re still neutral on Malaysia. But slowly we are getting more countries to invest in. So as these company countries come out of their hiking cycle, and start to have a handle on inflation, we’re bullish on Mexico as well. Mexico has done a great job by the way, their unemployment rate is close to 2%. Their GDP growth. We see growth every quarter. They really benefited from the nearshoring you know, from China being out of reach. So China’s losses, Mexico’s gain, let’s put it that way. They have been on pause with their interest rates. They may cut sometime next year they’re seeing in patient come down every month. So great place to also be Yeah, I guess that’s it.


Simon Erickson  44:58

Fantastic. I should This was a very insightful conversation. Thank you very much for being on the seven investing podcasts or this morning.


Ayesha Tariq  45:06

Thank you so much. I really enjoyed it. Thank you, Simon. And for anyone


Simon Erickson  45:09

who wants to follow along with more of Ayesha’s macro economic coverage, you can follow her website. It is macro visor, that is macro visor.com. I think that she’s got a great pulse on what is going on in the world around us. So thanks very much for listening to this edition of our seven investing podcasts. We’re here to empower you to invest in your future. We are seven investing. Have a great week.

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