What does this seismic shift in bonds mean for stocks and where might investors find shelter?

The stock market has been very volatile, but over the past few months, stocks have been driven by positive earnings revisions, particularly in AI-related sectors in Taiwan and Korea. Looking forward, we are looking at inflationary impacts from high oil prices and supply chain difficulties.

Are we looking at a new era of high inflation and high rates?

Yes, I think so. We have been in a long cycle of low interest rates. How long and how much inflation will come through depends on the oil price situation. Our base case expects oil to remain at $100 through the third quarter, leading to inflation and slower growth.

So we are looking at a potential correction. How deep might that be?

It's a bit too early to tell. The rally has been underpinned by AI and continuous spending. We have seen a healthy correction in Asia tech. We expect earnings fundamentals to remain intact, especially in AI, where spending continues and we are seeing early returns on investment in cloud revenues.

Surely even AI plays will be vulnerable to slowing growth and high rates.

That's right. We need to be very selective and focus on fundamentals. We are staying disciplined on valuations and sticking with names where we have a positive view and see earnings revisions upwards. It may not be a broad-based rise, but more selective, driven by laggards in this rotation.

You are overweight China. What is the conviction?

This is a contrarian trade. Valuations in China are very attractive relative to the AI-driven rally in Taiwan and Korea. On a selective basis, certain sectors are not looking that bad. Even within the retail slowdown, we see good signs in luxury spending stabilizing and value spending showing traction. The need for energy security from the Iran conflict is also a positive for China's supply chain.

Some say Chinese internet stocks are looking for a catalyst. Alibaba earnings came and went and nothing happened.

That's the broad weak sentiment. But if you look at the breakdown of earnings for Alibaba and Tencent, things are on track. They are seeing AI growth in cloud spending accelerate and margins improve. This is a key change. The guidance is clear that margins can increase closer to US levels, which sets good fundamental support for valuations when sentiment returns.

We are seeing a stabilization of sorts between the US and China on trade relations. How do you trade that?

We see this as incrementally positive. Strategic stability allows us to be more comfortable on fundamentals and take advantage of dips. From a structural perspective, we focus on energy security (battery storage) and China localization (tech AI self-sufficiency). The Chinese supply chain has lagged Taiwan and Korea, so there are bright spots if we are selective.

Your thoughts on India? It is on the verge of dropping out of the world's five biggest markets. Is there any reason to be buying India?

India is in a slightly challenging space. It lacks an AI story and is not part of the AI supply chain, which is why it has lagged. We are also concerned about how rising oil prices translate into higher fertilizer and fuel prices. While valuations have come down, we remain cautious due to these headwinds. We are selective, looking at defensive areas like utilities (energy security) and cheap banks.

What about the Indonesian market? The rupiah is at a record low, stocks and bonds are getting smacked.

For Indonesia, we need more political stability and clarity on how the government will navigate currency pressure and the current account deficit. Stocks look cheap, but we are managing our exposure due to these headwinds.