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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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Crispin Murray: What’s driving ASX stocks this week?
Most people would be aware from last week’s per-capita recession headlines that Australia’s population growth is outstripping economic growth.
But population growth – especially immigration and temporary visas – is also supporting corporate earnings, says Pendal’s head of equities Crispin Murray.
“All up, we’re probably looking at about a 3 per cent rise in the population today versus a year ago.
“People are coming to Australia with money in their pockets, setting themselves up and getting accommodation – which is driving up rents.
“Part of the reason we’re seeing resilience in the top line of companies is because they’re basically driven by nominal GDP, not per capita GDP.”
Population growth is also offsetting the effects of the ‘mortgage cliff’ which forces households into higher, variable mortgage payments as low-rate fixed loans expire, Crispin says.
“With each company we met over reporting season, we talked about the issues facing them and if they were seeing consequences from this mortgage cliff. So far, the consequences are very limited.”
Nov 30
Why bonds still look better than TDs | What we learned from the OpenAI coup | Why our EM experts like India
Not just cricket: Why our emerging markets experts like India
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Not just cricket: Why our emerging markets experts like India
India may have fallen short in the Cricket World Cup this month, but it’s been on a winning run since hosting its previous world cup in 2011.
Since then the country has changed massively, becoming a more attractive location for emerging markets investors, says Paul Wimborne, who co-manages EM investing at Pendal.
“The most significant changes have been in internet connectivity and digital infrastructure.”
The nation’s Digital India program, launched in 2015, has digitised government services and built national internet infrastructure.
The project is now a blueprint for developing nations, Wimborne says.
“India has always had a strong services export economy based on software and services. This is going to kick things along even further.
“We are going to see huge changes in things like healthcare and digital commerce. Small-to-medium enterprises will have much greater ability to sell online.
“India is going to become an even bigger powerhouse.”
Pendal’s head of income reveals a high-conviction call and a non-consensus view for 2024
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Pendal’s head of income reveals a high-conviction call and a non-consensus view for 2024
This week Pendal’s head of income strategies Amy Xie Patrick was asked in a Bloomberg webinar about her highest conviction call for 2024.
“While markets are pricing in a soft landing, I argued there would likely be a US recession in 2024,” says Amy.
“A lag in the impact of policy tightening has been evident in the slowdown of inflation and wages in recent months.
“This can be seen particularly in shifting trends in the labour market. The most obvious signal is a falling ‘quits rate’, signalling workers are becoming less confident about alternative job prospects.
“In my view, lagged effects will continue to appear in the data next year – and as we all know from history, recessions happen slowly, then suddenly.
“Likely in the second half of next year markets will realise disinflation is no longer immaculate – and is being caused by recessionary forces.”
Nov 23
Is RBA right on end-of-year inflation? | Time to consider balanced funds | When rates stop fighting inflation | Why UAE should be on EM radar
Emerging markets: UAE’s journey from desert sands to investment oasis
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Emerging markets: UAE’s journey from desert sands to investment oasis
The United Arab Emirates was hit badly by Covid, reporting more cases compared to its neighbouring Arabian gulf states.
That caused a drop in tourism, subdued real estate and higher unemployment.
But it’s since made a powerful recovery and undergone structural reforms that make it more attractive to emerging markets investors.
“The significance of the structural reforms has been underestimated,” argues James Syme, a senior PM from Pendal’s EM team.
Foreign nationals can now live and work in the UAE for a decade and buy property there.
Other reforms have developed Abu Dhabi and Dubai into financial centres. In 2022, the region hosted roughly a quarter of all global IPO volume.
“After taking a thorough look at the UAE’s recovering tourism, trade and oil sectors in the context of deep structural reforms, we moved our position to overweight,” says James.
Income and fixed interest wrap: latest outlook for inflation, rates and bonds
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Income and fixed interest wrap: latest outlook for inflation, rates and bonds
The Reserve Bank has revised its end-of-year inflation forecast to 4.5% – where it was in May. Are they right?
Pendal’s income and fixed interest team expects Q4 inflation between 0.7% and 0.8%, meaning the annual figure would be closer to 4.2%.
“If we’re right, then the November rate hike wasn’t needed,” says head of bond strategies Tim Hext.
“More importantly, this makes the chance of a February hike very low.
“Beyond February, inflation should remain sticky around 0.8% to 0.9% a quarter, meaning rate cuts are off the table for most of 2024.”
Pendal roughly agrees with the RBA’s expectation of a 3.6% number by mid-2024.
“By the middle of next year, US rate cuts may well be on the table, helping bonds find more support.”
In Australia, all eyes will be on Santa’s stocking to see the impact of the pre-Christmas hike.
Bond yields remain attractive on a medium-term basis, says Tim.
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