So those are some of the themes we're Watching out for give us a sense of what You are looking at as well for the year Ahead Yeah i think that's uh pretty much uh Accurate in terms of what to expect i Think the other thing that i would add To that is that we are going to see a Lot more withdrawal of uh stimulus the Central bank liquidity is going to get Withdrawn that's been a big driver of The market so uh there's a lot of cash Flows sitting on the sidelines we think That's going to drive the market up Probably until the end of january and Then things are going to get very rocky We think after that especially into the Second quarter No that takes into the balance sheet Question mo uh and you guys put out a Note for your clients as i guess you Look at the first few months not so much The whole year i mean who knows where We'll we will be six months from now uh But what you guys are saying the balance Sheet will play a lesser Part if you will a smaller co-relation To equities can you just explain that For us Yeah so basically over the last 13 years The balance sheet expansion has been the Biggest explanatory factor of what's Been happening in equities and certainly Since march of 2020 we've seen a 97
Uh correlation now it's not that the Balance sheet is not going to play a Role what's going to happen is that the Balance sheet is pretty much going to Stop expanding uh from probably the Second quarter and what we're seeing is That the market is already pricing in a Lot of that balance sheet expansion Already so somewhere around the four Triple eight region i think i've talked About previously as well uh that's where Uh we factor in all the liquidity uh for 2022 and so what we're recommending is If we go above that level we could Overshoot to as much as 5200 maybe on The s p in the next few weeks and if we Manage to do that then uh anything above Four triple eight is where you actually Want to start distributing uh all the Holdings that you built up um in the Second quarter of 2020. And mo Okay We talk about the fed we've got uh joe Biden's administration likely to appoint Three more members here that's going to Be fairly crucial looking ahead and then Libel is being consigned to the waste Bin of history too how do those two Relate and how do There's a more hawkish fed at the moment Play on the markets or is it all priced In now Well i don't think it is uh completely
Priced in yet i think the uh they They're certainly more hawkish uh Members of the fed uh that are going to Be voting uh this year but then mr biden Has also got another three members that He's going to be appointing uh to the Friends so it's going to be quite an Interesting debate as to what comes out And we'll hear uh later this week uh the Minutes of the december meeting uh and The expectations for rate hike so i Think at the moment what we have is the Market still moving according to this Tapering uh Accelerated tapering i think that's been Priced in uh but i don't think that rate Hikes and certainly not excessive rate Hikes um have actually been Factored in by the market my view is Actually a lot more dovish than the Market on uh inflation especially Towards the end of the year um but i Think that's going to be The the chances of more rate hikes in The market is thinking about is probably Going to be one of the Key concerns for the middle of the year Uh you guys see the dollar index Topping a hundred more that can't well Probably can't be good for for at least Non-us equities No i mean i'm not uh bullish on uh Emerging market equities yet i was just Looking again at uh china tech shares
Still not bullish on that i think there Could be a uh four or five percent more Rally uh in those um in in january but Again There's still concerns around them and Certainly if the dollar goes up in the Way that we expect it to do on the back Of rate differentials then that's Certainly not going to be positive for Emerging markets in general and hong Kong equities in particular so really no Change in view the fact that it's January the first uh really doesn't make Any difference in terms of uh the longer Term trends But what if inflation moderates from Here even slightly because We we might be seeing some signs that Base effects might kick in Uh china ppi prices for example have Started to come off a little bit i mean How does that view on the dollar you Know sort of jive with the view on Inflation Well this is one of the reasons why We're not so um we're not as concerned But let's say as on as other people on Uh inflation certainly a stronger dollar Will help um in terms of keeping those Inflation uh pressures uh lower the base Effects will wash out and i think what We have to look at is not spot commodity Prices but actually looking down the Futures curve and looking at what's
Going to be inflation Uh sorry oil prices for example Towards the End of the year so yes inflation is Elevated but again We think that a lot of these are going To be washing out and certainly if we're Towards the end of this covid episode Then as markets and the economy Normalizes then a lot of those Inflationary pressures should wash out Especially towards the end of the year My view is perhaps you might be talking About disinflation again By the end of 2022
