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The Point
Quick, actionable insights for investors
May 29
The headlines driving Aussie equities | Falling USD should lift EMs | Where to find opportunities in theme-driven markets
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Elise McKay: The headlines driving Aussie equities this week
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Elise McKay: The headlines driving Aussie equities this week
Here are the main factors driving the ASX this week, according to Aussie equities analyst and portfolio manager ELISE MCKAY and reported by head investment specialist CHRIS ADAMS
Read Pendal’s latest weekly equities overview.
Crispin Murray: Where to find ASX opportunities amid ‘theme-driven’ market noise
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Crispin Murray: Where to find ASX opportunities amid ‘theme-driven’ market noise
Share prices are increasingly moved by popular themes like AI disruption, trade wars, and tariff fears – without regard to company fundamentals or long-term valuations.
As a result, quality Australian companies with sound outlooks and predictable cash flows are being indiscriminately sold off.
That’s creating opportunities for active fund managers, Pendal’s head of equities Crispin Murray told Morningstar’s 2025 investment conference in Sydney last week.
“We believe this is creating more distortions in the market. It means the amplitude of mispricing is greater, and it lasts longer.”
Global market dislocation means the ASX has a range of industrial companies with predictable cash flows and returns that have been sold down and offer opportunities for investors, he says.
“One example is CSL – one of Australia’s largest, most successful companies. Five years ago it was running high – at an over-40 multiple. It’s now down to about 22 times earnings,” he says.
Fears of the impact of tariffs on CSL are misplaced, assuming the company doesn’t do anything to respond – “and I think that’s where the market’s overreacting,” argues Crispin.
“We think the risk on the tariff front is being overstated, and that’s what’s providing you the opportunity.” Pendal owns CSL.
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‘Emerging markets crisis’? That’s a wildly overstated view, say our experts
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‘Emerging markets crisis’? That’s a wildly overstated view, say our experts
Some analysts have described a pattern of a weaker dollar and rising bond yields in the US as a ‘classic emerging markets crisis’.
“As veterans of actual emerging crises dating back to 1994, we consider that view to be wildly overstated,” writes Pendal’s EM team in their latest analysis.
In spite of volatility and weakness in core US financial markets, the currencies of almost all emerging markets strengthened against the US dollar in March and April. Meanwhile bond yields fell for the majority of major EMs.
“Emerging markets are driven by two major global drivers: international capital flows and international trade.
“A weaker dollar represents capital flowing out of the US and into the rest of the world – and a weaker dollar has consistently been positive for emerging markets over the past 30 years.
“Although evolving tariff policies threaten a downturn in global trade, the message from financial markets is that investor uncertainty about US economic policies is a clear positive for emerging economies and for investors in emerging markets.”
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Amy Xie Patrick: China, the US, and the value of uncertainty
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Amy Xie Patrick: China, the US, and the value of uncertainty
This month’s divergence in US and China rates policies wasn’t just a curiosity for money managers, observes Pendal’s head of income strategies, Amy Xie Patrick.
“It’s a study in contrasts, a reflection of deeper structural differences, and a reminder that policy effectiveness doesn’t always come wrapped in transparency or even democracy,” says Amy in her latest markets analysis.
On May 7, the US Fed left rates unchanged despite growing political pressure. Meanwhile, the People’s Bank of China delivered another dose of stimulus.
“One central bank faced market criticism over its non-committal guidance,” notes Amy. “The other moved swiftly and silently, without needing to justify its decision.
“Perhaps the most contrarian yet valuable takeaway is that less policy guidance may be a good thing.
“By avoiding the hard task of forecasting far into the future, we free ourselves from unhelpful narratives may that turn out to be false.
“By focusing on getting it right rather than always being right, we’re able to preserve the flexibility to change course when the fundamentals change.”
Read Amy’s full article here
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Global market volatility should be positive for stocks in some emerging markets
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Global market volatility should be positive for stocks in some emerging markets
In the EM space, market segments with the highest exposure to international investors saw the greatest weakness during the recent bout of market volatility.
Pendal’s Global Emerging Markets Opportunities team spotted opportunities amid the volatility – but not necessarily in the obvious places.
“In EM equities, the pain was concentrated in the IT sector, especially in Korea and Taiwan,” the team said in a recent report.
“We find hard to be overly positive about the IT sector, despite a reset in valuations.
“The entire sector has re-rated substantially in recent years, despite essentially soft demand in important end-demand segments such as PCs and mobile phones.
“This optimism has been attributed to a potential demand shift from widespread adoption of generative artificial intelligence.
“But beyond some key semiconductor names held in our portfolio, we have not seen sufficient evidence of this opportunity.”
Instead, look to companies in Mexico and Brazil, which appear to be well placed in the medium term, the team said.
Aug 8
How to manage current volatility in Aussie equities and fixed income markets
Amy Xie Patrick: A fixed-income perspective on current market volatility
Big market moves have rocked sentiment since the beginning of August.
What’s the outlook for a US recession and potential rate cuts?
US markets expect a 50-basis-point cut in September, followed by consecutive 25-point cuts, says Pendal’s head of income strategies, Amy Xie Patrick.
“Some big-bank economists are calling for back-to-back 50-point cuts – even an inter-meeting emergency cut.” Are things really that dire?
“We argue the data isn’t there yet,” says Amy.
Either way, we’re in “the ripe part of the cycle” for owning at least some bonds in portfolios, she says.
“Without a recession, bond yields should continue to fall steadily as central banks normalise their policy settings from restrictive levels. With a recession, bonds will pay for themselves.”
Bonds provide great insurance for the unpredictable. Add to that the 4% types of annual income returns you can get on US or Australian 10-year bonds and it basically amounts to being paid to take out insurance.
Crispin Murray: What’s driving the market this week?
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Crispin Murray: What’s driving the market this week?
Signs the US economy is slowing faster than expected has prompted a significant shift in market sentiment.
Even if this proves a “head-fake”, there’s room for an S&P500 correction to the 5000-5100 level – reinforced by weaker seasonals and election uncertainty, says Pendal’s head of equities Crispin Murray.
“There is also likely to be material rotation as part of this. We’ve been bracing for such a correction, with cash levels higher and positions reduced in some of the more economically leveraged stocks.”
Is this a “normal” bull market correction or will we see a more meaningful drawdown?
Tim Hext: Rate hikes off, rate cuts on in 2025
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Tim Hext: Rate hikes off, rate cuts on in 2025
Despite a narrative around re-emerging inflation, Australian investors are remarkably relaxed about the outlook for prices, observes Pendal’s head of government bond strategies, Tim Hext.
April’s inflation numbers – released yesterday – show a 3.6% increase in the annual Consumer Price Index. That’s slightly higher than March (3.5%) and more than the 3.4% markets were hoping for.
A rise in goods prices – mainly furniture, footwear and clothing – will not go unnoticed by the Reserve Bank and will require further investigation, says Tim.
But overall, the market is backing the RBA to do its job, he says. Implied 10-year inflation levels remain reasonably well anchored at 2.77%.
“Three-year yields in Australia moved back above 4 per cent after the data. We view this as a buying opportunity, since our medium-term view on inflation is positive.
“US inflation numbers come out on Friday and should show lower rental data feeding through to lower outcomes.
“Unless our concerns ramp up, we will be happy to be long duration into the winter months.”
Anthony Moran: what’s driving Aussie equities this week?
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Anthony Moran: what’s driving Aussie equities this week?
Here are the main factors driving the ASX this week according to Pendal investment analyst ANTHONY MORAN. Reported by portfolio specialist Chris Adams
IT’S been a bullish period for assets after the US monthly Consumer Price Index (CPI) broke its run of hawkish surprises – instead, delivering in line with expectations and validating the recent decline in bond yields and the US Dollar Index.
We also saw a continuation in the run of softer, but not disastrous, economic news – reinforcing the narrative’s switch back from “no landing” to “soft landing”.
In response, US equity markets hit fresh highs; the S&P500 gained 1.60%, the S&P/ASX 300 rose 0.98%, while commodities and bonds also moved higher over the week.
As a result of recent data, the market is now pricing 45 basis points (bps) of rate cuts in the US this year – with an 85% chance of a first cut by September.
At the same time, the Atlanta Fed GDPNow tracker estimates that the US economy will grow 3.6% in Q2 2024.
On balance, this combination is positive for markets and – given the slower pace of change in the data – may support this environment through the Northern summer.
However, Federal Reserve Chairman Jay Powell noted that while he expects inflation to come down, his confidence is not as high as it had been and that it may take longer than expected for restrictive policy to help bring inflation down to target.
So, bond yields overshot in mid-April, but it is hard to see them moving much lower from here in the short term given the large pullback from peak.
We also need to keep a close watch on company earnings for any sign of impact from a slowing economy.
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