The Point

Pendal profile: Meet our head of credit and sustainable strategies George Bishay

Services – particularly wages and rental inflation – have held up prices recently. But Pendal’s forward indicators show the drivers of these two factors weakening.

That means inflation in developed markets should continue to fall and central banks globally can start cutting rates, says Pendal’s head of credit George Bishay.

It’s a bullish scenario for bonds as well as credit and equity markets, he says.

But one of the risks for that scenario is a Donald Trump victory in November.

“If Trump wins the election, will he have the ability to change policy? Will he have a majority in both houses of Congress?

“If he does, that’s problematic for bonds because ultimately that’s likely to be inflationary,” says George.

The impact of a Trump presidency is more skewed towards longer-term bonds because his policies would likely have a medium-term impact on inflation, George says.

“The short end should continue to perform because central banks will be easing rates as current inflation comes down.”

Debunking a myth about fossil fuels and sustainable fixed interest

High fossil fuel prices can understandably discourage investors from allocating to sustainable strategies.

Sustainable portfolios generally exclude exposure to fossil fuels, which may mean underperformance when oil prices rise, for example.

But that’s not necessarily the case across all asset classes, says Pendal’s head of credit and sustainable strategies, George Bishay.

“There’s a perception that all asset classes face these potential performance risks when prioritising sustainability.

“But Australian sustainable fixed-income exhibits minimal sensitivity to oil markets or any other screened activities,” writes George in a new Pendal paper.

Fossil fuel companies typically make up a large part of equities indices (about 15 per cent of the ASX300 in July 2024).

But issuers involved in fossil fuel extraction, exploration or refining are a small component of the Australian fixed-income benchmark.

“This differentiation allows investors to integrate sustainable fixed income into their overall core fixed-interest allocation with minimal additional benchmark risk,” says George.

“By incorporating Australian sustainable fixed income alongside other traditional assets, investors can achieve a robust portfolio while also supporting climate stability or the underserved in society.”

Fixed income: the likely impact of rates, inflation and a Trump presidency

Services – particularly wages and rental inflation – have held up prices recently. But Pendal’s forward indicators show the drivers of these two factors weakening.

That means inflation in developed markets should continue to fall and central banks globally can start cutting rates, says Pendal’s head of credit George Bishay.

It’s a bullish scenario for bonds as well as credit and equity markets, he says.

But one of the risks for that scenario is a Donald Trump victory in November.

“If Trump wins the election, will he have the ability to change policy? Will he have a majority in both houses of Congress?

“If he does, that’s problematic for bonds because ultimately that’s likely to be inflationary,” says George.

The impact of a Trump presidency is more skewed towards longer-term bonds because his policies would likely have a medium-term impact on inflation, George says.

“The short end should continue to perform because central banks will be easing rates as current inflation comes down.”