Hello and welcome. My name is Jason Pasquinelli. I head up RBC's Global Management Consultant Relations effort. I'd like to thank you all for joining us for our seventh annual Emerging Markets webinar. We're calling it "Entering the New Regime". We hope you find today's discussion to be insightful, as we share the ideas shaping our views on the new regime entering into the Emerging Markets for 2023.

Before I introduce today's speakers, a bit of housekeeping. If you have any questions or comments throughout the discussion today, please submit those using the functionality on your screen. We will do our best to weave them into the discussion. We also have a Q&A at the end of the session that we'll be looking to fold those questions in as well. We do encourage as many questions as possible, so thank you in advance for your time and the questions.

For those of you unfamiliar with our firm, RBC Global Asset Management manages about 400 billion in assets, with specialist investment teams located around the world. Each team is dedicated to excelling in its particular asset class or market segment, and as a result, allows our clients to benefit from a diverse set of perspectives. As you will learn today, Emerging Markets is an area in which we have particularly deep knowledge and experience, managing more than 25 billion between our Emerging Market Equity and Fixed Income desks.

Joining me today are two London-based colleagues of mine from RBC Global Asset Management's Emerging Market equity team, as well as BlueBay's Fixed Income team. Polina Kurdyavko, Head of Emerging Market Debt and Senior Portfolio Manager on the BlueBay Fixed Income team, and Laurence Bensafi, Deputy Head of Emerging Market Equity and Portfolio Manager for RBC Global Asset Management. I certainly appreciate both of your time today and look forward to hearing your insights on the Emerging Market space.

So, maybe to set the landscape a little bit, looking back at 2022. Sky-high inflation, rising interest rates, and a stronger dollar formed the perfect storm to catch investors in a downdraft with little room to run. We saw a sea of negative total returns in many asset classes, the Emerging Market space was included in that. Maybe the best way to start is with having Laurence chime in on where we're at currently on the equity side of the equation.

Yes. Hi, Jason, thank you so much. So, I mean, look, I think right now, we're starting to see a different view forming about Emerging Market equities after, as you mentioned, quite a bad year. But actually, it was a long period of underperformance by Emerging Market equities, and many are actually giving up on that asset class, because the reality is that since the global financial crisis, we have been in a risk-off environment with low inflation, low interest rates, low commodity prices, and a strong US dollar, and all that really favored US equities over Emerging Market equities.

However, it's really important to remember that that hasn't always been the case. There's been long periods of outperformance of EM equities over developed market equities and US equities, and at the same time, long periods of the US dollar getting weaker. And usually when you have those changes in regime it's because something happened, a big event. Last time, it was a global financial crisis, and a long period of underperformance for Emerging Market equities, and we believe that what we've seen in the past few years is another one of those big changes, big shocks, and we had actually two over the past three years. So, we had COVID, and then obviously, the war in Ukraine, and we believe that those two events are completely changing the perspective on several topics, in that we are seeing the emergence of two new trends that are going to be playing out for the next years and decades, which are deglobalization and decarbonization. So, I think there was a realization that, depending on other countries, and some of them not necessarily very friendly for a lot of things, actually, from food to energy, to a lot of manufacturing goods, was maybe not a great idea and was dangerous. So, while we see this change, and we believe that those trends will lead to higher inflation for longer, so higher interest rates, higher commodity prices, and a weaker dollar, and all those elements will be tailwinds for Emerging Markets for the next few years.

In the short-term, really clearly the main important driver for outperformance we believe would be China reopening, the way that happened, and the fact that in a lower growth environment globally, as China would deliver stronger growth, we're going to see this gap of economic growth between the Emerging Market and the world market to increase again, which usually is really a good predictor of outperformance of the Emerging Market versus developed market. And finally, positioning and valuations are also very attractive for the asset class. So, I think all that is really very positive when it comes to Emerging Market equities after a difficult period for sure.

Thanks, Laurence. Polina, how about your thoughts from the debt side?

Thank you, Jason. I guess I would start by saying that we do have a tailwind now of lower inflation as inflation in the majority of Emerging Market countries has peaked or is about to peak, and to some degree, we've seen quite an orthodox monetary policy mix from Emerging Market countries, which acts as a key positive and strong tailwind for the asset class more broadly.

Now, the second tailwind that Laurence has also highlighted is the backdrop of relatively elevated commodity prices that we witnessed over the last couple of years, which actually helps the current account dynamic quite substantially in Emerging Markets, and remember, key Emerging Market crises tend to start from the balance of payments crisis, and this is not the case this time around, given that the current account dynamic has improved on average in Emerging Markets.

So, you have pretty strong tailwinds coming into this year. In addition to that, you get double-digit yield on even hard currency indices. Emerging Market sovereign being an example of that. So, those two factors create quite a positive backdrop for EM investing. However, we would expect the next couple of years to remain volatile across all risk assets, and Emerging Markets is not an exception, and I would say that there are two main areas of focus for us when it comes to the source of that volatility.

Firstly, there is a group of countries which we would classify as frontier markets that do feel the most the tightening global liquidity and the higher core rates, and they do have less developed local currency markets, and they've accumulated a lot of external debt. Those countries could face debt refinancing problems and could go through restructuring, like we've already seen with a number of countries over the last couple of years. Sri Lanka or Ghana, just to name a few. And we would be very cautious in other frontier economies potentially joining that list.

The second area of volatility comes from bipolar governments that we're seeing operating in Emerging Markets, and I use this term to demonstrate that if you are in the government, or if you are the Minister of Finance, and you are looking ahead in the next two to three years, it's clear that your fiscal constraints are quite high. So, your ability to spend given the COVID pandemic, given that required spending in the first place, given the mild recession environment that the world is facing today is relatively limited. Yet, you have to sell a popular, if you will, narrative to the population in order to engage its support, which often requires more spending, and that's what I mean, where you often would see a situation where your government is saying one thing, but it's doing something different, and that in itself creates volatility, and that also has potential for social unrest.

So, putting all of this together, we feel that, from a Fixed Income perspective, we are most constructive on hard currency sovereign and local currency debt, given the positive tailwind from FX that we haven't seen for over a decade. We are a bit more cautious on corporate balance sheets, given the outlook with a mild recession environment globally. But we feel that this is undoubtedly an environment for active management given the headwinds that I've mentioned.

Thank you, Polina. So, we covered where we're currently at, let's start talking about 2023, and I think when you talk Emerging Markets, the natural conversation gravitates toward China, and the reopening that we're starting to see. Polina, maybe we can start with you and your thoughts on the impact of China reopening on the debt market.

Sure. I would say that most have been surprised by the pace of China reopening, and I guess the key question is the impact that China reopening will have. I would say that you can separate the impact into three parts. Firstly, impact on financial markets. Secondly, impact on the real economy, and thirdly, impact on the inflationary dynamic. When it comes to financial markets. In our view, the impact has been in credit, relatively short-lived, as we've seen a very big swing upwards in the bond prices, especially in the sectors that were more distressed, where in some cases, bond prices moved from seven cents on the dollar to 70 cents on the dollar in the pace of two months.

From here going forward, we feel that the financial performance of Chinese credit would be broadly speaking in line with the rest of the universe, given how sharp the correction has been so far. When it comes to economic impact, we feel that it should further support, especially in the short-term, the global growth narrative, as China is reopening, and supply chains are normalizing. But when it comes to inflation impact, that's where I feel is the biggest debate, because the majority of the market expects this reopening to be mildly inflationary. We feel that there are some arguments in favor of a disinflationary impact of the reopening, given the magnitude of supply chain normalization, which can, in itself, put downward pressure on inflation. We would view it as a positive tail risk. If it were to materialize, we feel the risk assets in the first half of this year can perform much better than currently sell-side estimates suggest both on credit and on equity.

Laurence, thoughts from the equity side?

Yes, so from the equity side, look, the reopening and the way it happened is very positive for the asset class in equities. So, in the short-term, we're quite positive on the asset class because the Chinese equity market rates are still very close to the lows over the past 20 years, so valuation is very attractive. And the positioning is also extremely low. So, the hedge funds were the first ones to enter the trade on the equity side three months ago. Over the past months, we've seen lots of inflows into the EM funds that have closed their underweight, but there's still a lot more to go, especially from the global equity funds, which still have quite a large underweight position in China.

When it comes to the economic growth, we feel like there's really space for upside there. Clearly, the reopening has been much faster than expected, as Polina said, and that happened, showing that the excess saving that's been formed in China over the past three years is huge. I mean, it's estimated that about $3 trillion has been saved in excess, on top of already really high savings in the country, and we believe that this money is going to go back into the economy, where people first will go out, travel, and later on, but only probably toward the end of the year when the confidence is back, we'll start to go back to the property market. So, we feel that the GDP growth for the year, which is estimated at about 5%, could easily exceed that target.

And another reason to be positive is that I think towards the end of October last year, the view had formed on China that the country was becoming non-investable by foreign investors. Clearly, there was this view that maybe the country was going to close down quite a lot, relationships with other countries were really very bad, getting worse and worse, and the focus seems to be not anymore on economic growth, but on other things such as reducing inequalities, et cetera.

So, that was really the lower point, I would say, for Chinese equity, and so, as I said, the way the reopening happened, and the comments that were made at that time of focusing on increased economic growth and this target of at least 5% GDP growth for the year, has been really positive, I will say, for the asset class, and explains the big rebound we saw already in Chinese equity, and as I said, I think there's more to go for the rest of the year.

I mean, that doesn't mean that the risks has gone away completely. There are still a lot of question marks around China. If we look a little bit further down the line, China really needs to start to reform, to focus more on consumption, to continue to grow at this level, and really, there's a question mark. President Xi is obviously concentrating a lot of the power and really his actions are going to be recognized around the next few years. There's always a risk in the back of a lot of investors' minds that by concentrating too much power, we're going to move towards a type of scenario like we've seen in Russia with Putin and obviously the end result we know.

So, in summary, quite positive over the short-term with the stock market, which is undervalued and under-owned, with the potential of upside surprises on economic growth. Medium, long-term, a lot of question marks still.

Thanks, Laurence, and I wrote down the word "decarbonization" from your comments at the beginning of the session. I guess decarbonization with China, a huge theme that you have. I would love to hear your thesis on it, and if there's anything that would challenge that thesis around decarbonization.

Yes, I mean, I think decarbonization was already a theme we were very interested in, and we could see that in the big energy-importing countries such as China and India. There was already a lot of focus on decarbonization, and growing, in particular, the renewable energy segments. But with COVID, and even more the war in Ukraine, really it's becoming a necessity for a lot of those countries to really reduce their dependence on some countries, and as I mentioned, at the beginning, a lot of those countries are not necessarily friendly. So, even though a lot of countries in Asia still buy from Russia, it's not something they feel very comfortable to continue with. So, they've been really accelerating the move, and actually, we've seen the headline recently on the richest man in India, Gautam Adani, he built his fortune – I mean, we can talk about it later, but at least he built his Fortune a lot on renewables in India. So, for those countries, it's really important to become independent in terms of energy production, so they will continue to invest. By doing so, if you build a credible and very advanced production industry, it gives you another advantage. So, for instance, China is the biggest producer of solar panels in the world, 90% of every solar panel is built in China, and they own the entire value chain, from really the most upstream to the modules. So, it's very important, and we feel like this is something, as I mentioned, that was going to play out for many years, and is really important for many Emerging Market countries.

In terms of risk, I think there are several risks. One of them is definitely a large recession, global recession. This is expensive. You need to invest a lot of money in renewable energy, and at the moment, only the countries that can afford them, because there's a lot of investment they're not paying off immediately. It's more expensive to produce renewable energy, at least in terms of CapEx, in the beginning. So, we can see potentially a slowdown in spending. But really, for us, this is something that's going to play out over the next decades in our countries. And Emerging Markets, a lot of them are very well positioned for that because what you need, you need sun, you need space, and we have that. So, if you compare to Europe, which has the same willingness to really grow their renewable energy industry, they have some challenges in terms of being able to just build what you built, when we don't have that issue in a lot of our countries.

Thank you. Polina, any decarbonization or alike-type themes bubbling up on the debt side?

I would say that – to add to Laurence's theme on a move towards renewable energy in India, I would also highlight some of the Middle Eastern countries where we've seen increased efforts over the last year, year and a half to reinvest the surplus that has been generated from the energy sale into more sustainable projects, and I think that's a positive development.

If I think about it going forward, I feel that there are two main constraints, and two main themes if you will, in decarbonization. Firstly, it's the disclosure, and secondly, it's the funding. On the disclosure side, I feel that we have seen improvement in disclosure from the corporates, as they appreciate that that's what investors demand more, but it also gives us a big room for engagement, both with corporates and sovereigns, and I would highlight that our engagement on deforestation with the Brazilian government over the last few years has gained a lot of momentum, given the focus on more data disclosure and more engagement with the sovereigns to make a shift in the decarbonization policies.

The second point would be funding. As Laurence has highlighted, funding can be a challenge in Emerging Markets, and we are in a tight liquidity environment. With that said, from a Fixed Income perspective, we've never seen more interest in providing ESG-linked funding to help corporates and sovereigns improve their, if you will, their goals, or reach their goals to have a sustainable energy policy. And in our view, in particular, in the current environment, there is a lot of appetite for KPI-linked funding in order to reach those goals. So, I do believe that there is opportunity to generate positive return, but also contribute to decarbonization in Emerging Markets from the fixed-income side as well.

Great. Polina, I'm sticking with you. Turkey has been getting a ton of attention in the news lately. It’s one of the countries that are actually reducing rates where virtually everyone else is raising rates. Your team just published a blog on this. Any thoughts around Turkey that you can share with the group?

Thank you, Jason. Turkey is indeed a country that has defied gravity for a number of years now. And I also feel that this is a country which made a problem – which was relatively easy to solve over a year ago – a problem which becomes more difficult to solve from the current starting point.

In fact, myself, and the members of my team together with Laurence and some of the members of the RBC Equity team did a combined trip to Turkey just a few months back to do an on-the-ground due diligence and observe what is the cost of this unorthodox policy.

And the truth is from the sovereign perspective, we feel that the president has managed to secure strategic relationships/friendships that helped a lot on the funding side. But from a corporate perspective and from the banks’ perspective, this unorthodox policy, effectively, to some degree, paralyzed the banking sector, given administrative controls and 200+ regulations imposed on the banks. And it questioned the competitive nature of Turkish corporates, given the 40% real appreciation in Turkish lira over the course of this year alone, which made it cheaper to produce goods in other neighboring countries, be it in Eastern Europe or even the Middle East rather than in Turkey.

And that long-term competitiveness issue, in our view, is much more difficult to resolve from the current standpoint. So, we are cautious on Turkey. Across the suite of investable assets, we feel that the area which we can still invest is sovereign hard currency debt, but we feel local currency debt and corporate debt, and financial debt is an area which one should be very careful on in terms of their exposure at the current juncture.

And we hope that the government realizes the long-term cost to these policies sooner rather than later.

Thanks, Polina. Laurence, anything from the equity perspective as it relates to Turkey?

Yes, on the equity side, foreign investors have really stayed away from the equity market in Turkey for years now, worried by President Erdoğan’s economic policies for sure. But last year, the stock market in Turkey was actually, I believe, the best-performing equity market in the world. It was up 90% for the year, which is quite extraordinary.

The reality is that there was no involvement, whatsoever, from foreign investors. It was all local retail investors using the stock market as a hedge against really high inflation with a very low-interest rate environment, as you mentioned yourself. So, there was not a lot of choices where to park your money, and they put it in the stock market. So, now, that actually inflation has started to go down in the country, we start to see the unwinding of that trade.

So, I would say on the equity side, it’s very unlikely that for an investor to come back to the stock market until at least after the elections. And then on the equity side, they would want to see a change of leadership, a change of policy, but I think with the same leadership it will not be enough. So, it’s really to see a change in the president and see what happens next for foreign investors to come back.

But it’s worth noting that Turkey could become, again, a very interesting country to invest in as it used to be in the past, due to its size, the size of the population, a young population, the potential for growth, and the quality of the companies or the corporates themselves that are extremely good. So, it’s a country that is always worth keeping an eye on because changes, hopefully, will come at some point and it could be a great opportunity for investors.

Thanks, Laurence. It’s really tough to have an EM webinar these days without talking about Russia and Ukraine. I think maybe, Polina, we’ll start with you. In terms of your thoughts on when the invasion is going to end, if it happens in 2023, what are the consequences of that happening? So, I’ll pass it over to you.

Thank you, Jason. We do believe that Russia troop withdrawal from the Kherson was the beginning of the end of the war. And our base case scenario is that the war will finish by the end of this year.

Now, we believe that there could be a number of ramifications for the end of the war to the financial markets. Of course, the first one being the behavior of the commodity prices. Even though, medium term, we feel that the sanction regime has a better correlation, if you will, with the magnitude of the impact of the war and the sanctions are unlikely to change anytime soon unless there's a change in regime, we do think that there is potential for oil price volatility, for example, if we see the end of the war. And there, we feel that if we overshoot on the downside, that’s a dip in the market that is likely to be bought because, ultimately, the long-term equilibrium prices of oil should be somewhere in the 50 to 60 range in our view.

Other than that, we feel that it’s very important to focus on the Ukraine reconstruction project, and that’s the area that we've been doing a lot of work on, as Ukraine will need a lot of funding both secured and unsecured to restore back the country. So, hopefully, we’ll get there sooner rather than later.

Thanks, Polina. Laurence, any thoughts from your end on the equity side?

Yes, so on the equity side, Russia was quite an important market, quite big with big exposure to commodities, for instance. And many investors had exposure to that stock market, so really what happened was a big shock. And obviously, now with sanctions, there's no exposure anymore.

I believe that it would take years and years before we see equity investors coming back to the Russian market. And as Polina mentioned, I think it would definitely need a change of leadership in the country. So, yes, I think it would take some time. Having said that, if we see the end of the war, it would be very positive for sentiment for the asset class, so that’s, hopefully, something we’ll see in the coming months.

Excellent. Thank you. We’ll switch to audience Q&A now. And it looks like there's a couple of questions that are coming in around Latin America in the equity side. So, maybe, Laurence, from your perspective, we've seen protests in Brazil, some activity in Perú. Any thoughts on Latin America, generally speaking?

So, it’s a tricky part of the market for us on the equity side. It’s a very volatile [inaudible]. We've seen a lot of changes in terms of leadership in those countries. And as you said, there's been a rise of left-wing type of governments and a lot of opposition to that. So, we've seen protests in many countries. So, this is well reflected in valuations. So, those countries are fairly attractive, but we are careful and look really case by case.

I would say in terms of Brazil, I think the protests are not a huge deal. There was no risk that we would see really the new administration being removed or anything, and I think that’s behind us. But the main risk is really what is the new administration going to do.

It started pretty badly, I would say. So, we need to say really the policy we see in terms of fiscal. Clearly, Brazil needs to spend less. We need to see a continuation of the reforms, the good reforms that have been implemented by the previous administration. So, a lot of question marks in Brazil, but really, clearly, one of the cheapest markets right now in Emerging Markets. So, we feel like a lot has been priced already in Brazil, so there's interest for that country.

Perú is in a different situation, really, very concerning in terms of protests, quite violent as well. So, we’re probably going to see elections coming up sooner than expected in Perú. So, again, a very fluid situation. Once again, an interesting equity market in terms of valuation. So, I would say that’s really the main.

I would say the last one on Latin America, weirdly, because that’s not what people would have said a few years ago, but probably the most interesting country is Mexico. And it’s where we were talking about the globalization a little bit.

Mexico seems to be one of the main beneficiaries from that trend. And we already see a lot of re-onshoring coming to Mexico, which is the best place to be to re-export into the U.S. So, a lot of activity in the country. That could be benefitted through the banking sector, for instance, that has seen a large increase in activity, in particular, lending.

So, very volatile, but some opportunities as well.

Thanks, Laurence. Looks like there's a couple of questions – I’ll kind of batch them together for you, Polina, around EM credit and with the U.S. rates being elevated in the way that they are, what the impact is for potential increased defaults in the space.

Thank you, Jason. We have seen an increase in default rates over the last couple of years on the sovereign side, and on the corporate side, we've seen almost a bifurcation in default. So, if you were to look at the forecasts of defaults for the corporate side, we’re talking around 7% expected default for the high yield segment over the market over the next 12 months. But if we look at the constituents of those expected default candidates, it’s actually very heavily centered around the Chinese real estate, as well as Russian and Ukrainian credit that, on average, trades around 30 cents of the dollar. So, you could say that that expected default rate is largely in the price.

On the sovereign side, the higher default rate was really centered around the frontier economies. And here, as I mentioned earlier, we do remain a bit cautious because we do feel that those countries need bigger support not only from both multilateral and commercial creditors, but we would encourage, in this case, the IMF to be a bit more flexible using the new common framework regime to make sure all the creditors come together at the table and find acceptable parameters to restructure those countries. Because at the end of the day, it’s not the magnitude of haircut that defines success of the restructuring, it’s the timing of the restructuring, the policy mix after the restructuring, and the availability of funding after the restructuring which determines the success of the sovereign restructuring.

And we are very active in that respect. We are working across with a number of multilateral institutions to try to bring a new framework in order to avoid a number of years with high single-digit default, and really make it a one-off event, if you will, which is largely priced in on the frontier markets, as we speak.

Laurence, there's a couple more questions around India. It’s had a really good run the past couple of years. Your thoughts from the equity markets around Indian valuations?

Yes, India is interesting. It’s actually quite expensive, as you said, after the good run. And we had actually flagged the risk of underperformance, especially on our outlook that we published in December.

I think the main reason, at the time, was that valuation, which is really close to the most expensive it’s ever been. And the fact that with China reopening, there's really money moving from the Indian market to the Chinese market, it’s typically from one to the other.

And at the same time, retail investors that make a large part also of the equity market in India were moving away also from equities into bonds with interest rates being higher.

I think, over the long term, we still think India is definitely one of the best stories in Emerging Markets due to its size, to the young population, the potential from growth, the reforms that have been implemented over the past few years, but the problem is that by the end of last year, it was really priced for perfection, when China was really priced for destruction basically. The gap between the two was huge. India is far from being perfect, and I mentioned already earlier the story around the Adani Group, which is a reminder that, yes, India, you still have some issues with poor corporate governance for some of the companies, and the issue with corruption as well.

So, we don’t know exactly what happened, but it’s likely that the share price of some of the companies of the group were manipulated higher in order to secure more funding. And what is worrying is that if that happens to the biggest group in the country and the regulator didn’t see anything or didn’t do anything, that really leads to a lot of question marks for investors into India.

So, I think it’s an interesting time in India right now. It was also [inaudible] a lot for investors to switch to other lagging countries. But yes, so interesting times for India. Still very attractive long-term, but over the short term, I think you may see more pressure and more scrutiny around corporate governance in the country.

Thanks, Laurence. We've got one or two questions around the tensions between China and Taiwan. Maybe, Polina, you want to share your thoughts on that aspect?

Thanks, Jason. We don’t think that China is likely to invade Taiwan if that what stands behind the question. Of course, it’s difficult to predict those events. I know, Russia we have foreseen that in terms of our portfolios, but the truth is these types of events are very difficult to predict.

The reason why we don’t think this is likely to happen is because, really, twofold. Firstly, China has to be focused on economic recovery at this stage, given the two years of zero-COVID policy, which had a big dent in the country’s fundamentals. Secondly, having seen the Russian evolution, if you will, of the Russian crisis, I believe that they’ve also been a bit more wary of launching any military operations given the amount of time that that can take, and also the unexpected – from the Russian perspective outcome – an evolution of the war.

So, in our view, we feel that that probability is very low at this point in time.

Thanks, Polina. Maybe to conclude our Q&A, we’ll end with one that you both can answer, and it’s around the biggest risks that you both see in terms of EM performance in 2023. Polina, maybe we’ll start with you.

Yesterday, I was at one of the sell-side big dinners, a macro dinner where we were discussing the topic of risk for Emerging Markets. And I think for the first 45 minutes of the dinner, everyone was only talking about inflation. And to me, this is not the risk that we’re facing in Emerging Markets and globally. To me, this year is not about inflation. It’s all about fiscal. And I think that’s where the real risks would lie.

I mentioned at the beginning of the presentation that we’re faced with bipolar governments across the world that will have to navigate a very difficult message. And I perhaps can cite Colombia as a recent example of that message where a left-leaning president who won the public vote and gets public support, on one hand, wants to promise if you will measures that are more left-leaning, but on the other hand, wants to run very tight fiscal because the country cannot afford a loose fiscal. And this is not an easy message to deliver. And I think that even though so far – in Colombia, we believe that so far they managed to deliver this message but it does more volatility.

And so, for me, across the board in Emerging Markets as well as in developed markets that, to me, will be the underlying factor behind volatility. It’s the fiscal discipline. It’s the risk of social unrest. And it’s the debt sustainability dynamic that can deteriorate as a result of the fiscal discipline.

Laurence, how about you?

Yes, on the equity side, I think aside from the risk of bigger recession than expected, which obviously would be negative for all equity markets globally, I think really one of the risks is the relationship between the U.S. and China. We had a trade war a few years ago. Last year didn’t help as well on top of everything else in China. There was really deterioration of the relationship between the U.S. and China. And there's a big question mark.

There seems to be a little bit of improvement between the two countries. They really need each other. Fighting is not helping anyone. But there's really that risk that it’s going to get worse.

And I think it’s one thing to have Russia completely isolated and being like a pariah on the global scene, but if that was to happen to China, that would be a completely different outcome for everyone, really.

So, we’ll have to see, but China still represents more than 30% of our index. So, really what happens in China is obviously key. And if the relationship with the U.S. gets worse rather than improving during the year, I think that would be fairly negative.

Thank you both. Marketing was kind enough to add this giant clock behind my left shoulder to make sure that we stay on time.

So, I want to thank you both for your insights today. I certainly want to thank everyone for participating, especially those that have submitted questions. If we didn’t get to your question, we’re actually going to follow up and we’ll be reaching out to you shortly to make sure that all the questions that were submitted today are answered.

Also, should note that both Laurence’s team, as well as Polina’s team, routinely produce a great amount of thought leadership, and I'd welcome you to go to our website. You can read all about everything that they’ve published, in addition to seeing a replay of this link will be added there.

There’ll be a follow-up email as well. And that’s all we have time for today.

So, I just want to thank everyone for the time, and have a great rest of the day.

Thank you.

Thank you very much.