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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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May 2
Pendal named in Fund Manager of the Year Awards | ASX small caps back in favour | Two EMs set to benefit from lower rates | 10 investor themes for 2024
Aussie equities: Why conditions are favouring smaller companies again
ASX small caps are once again outperforming their large-cap counterparts after a period of underperformance in recent years.
In a short video, Pendal PMs Lewis Edgley and Patrick Teodorowski explain why small caps underperformed, how conditions have changed and what they’re doing to take advantage.
A rapid post-pandemic rate-rise cycle benefited large caps such as banks and insurers, while recession fears put investors off smaller companies.
But this year, as recession fears dissipated and inflation began moderating, investors regained interest in small caps.
“We’ve also subsequently seen earnings hold up significantly better than investors feared, says Lewis.
“More fundamentally, over the past two earnings seasons we’ve seen greater resilience out of the more cyclical companies within our index.”
Julia Forrest: What’s driving Aussie equities this week
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Julia Forrest: What’s driving Aussie equities this week
LAST week was a big one for macro data.
In the US, headline Q1 2024 Gross Domestic Product (GDP) growth came in relatively soft at 1.6%, versus 3.4% in the prior quarter and 2.5% as was expected.
At the same time, the Q1 Core Personal Consumption Expenditure (PCE) deflator – a measure of inflation – accelerated to 3.7% annualised, versus 2% in Q4 2023 and the 3.4% expected.
As a result, US bond yields continued their climb, with ten-year Treasury yields ending up five basis points (bps) for the week at 4.67% and the market increasingly implying a first rate cut by the Fed in December.
Chicago Federal Reserve (the Fed) President Austan Goolsbee said that the Federal Open Market Committee needs to “recalibrate” its stance – noting that “progress on inflation has stalled” in 2024 and that after three months, this signal “cannot be dismissed”.
Emerging Markets: Mexico and Brazil could benefit from bigger-than-expected rate cuts
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Emerging Markets: Mexico and Brazil could benefit from bigger-than-expected rate cuts
Pendal’s emerging markets team expects significant interest rate cuts in Mexico and Brazil, increasing their attractiveness to investors.
Although many developed and emerging markets have been cautious on lowering rates, Latin America has embarked on a broad rate-cutting cycle including Mexico last month.
“It’s true that some Latin American central banks that were quick to cut are now turning more cautious — notably Chile and Peru,” says James.
“But we believe Mexico and Brazil should both be able to deliver hundreds of basis points of cuts in policy interest rates over the next 24 months.”
Rates in both countries should come in much lower than consensus expectations in coming quarters, James says.
“This should bring an even more-positive boost to economies, corporate earnings and equity market returns.”
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