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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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ESG: How investors can judge a company’s climate change plan
“Investors need to have confidence that climate risks are being managed well by companies in their portfolios,” says Regnan’s head of research Alison George.
But how can you tell? It’s a complex question, but Alison offers a four-point checklist.
Is the plan credible? Does it comprehensively cover material issues? Is it clearly disclosed, with sources? Does it broadly consider the impact of the net zero transition?
Is it ambitious? You should see clear, comprehensive targets in the short, medium and long term on all material aspects of climate change, including value chain emissions and physical risks.
Is it real? Is it backed by enough resourcing and capability, appropriate organisational structure, cap-ex plans and effective board oversight? Has the plan informed strategy development and decision-making? Is there evidence of progress?
Are they acting against change? Is the company paying lip-service while lobbying against change?
A company that passes all four tests is likely to have a solid climate action plan.
Crispin Murray’s weekly ASX outlook
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Crispin Murray’s weekly ASX outlook
Aussie equity investors will have noticed a large sector divergence in the ASX300 this year. Our head of equities Crispin Murray rates the sectors from best-performed to worst:
- Energy: Positive fundamentals, making it the most defensive
- Consumer staples: Supported by predictability and lack of cyclicality
- Financials: Becoming less defensive in the past few weeks, probably as the market has started to focus on the prospect of a domestic economic slowdown
- Property: The break-out in Australian bond yields has turned this sector from defensive to under pressure in recent weeks
- Healthcare: Has lagged due to growth characteristics, but becoming more defensive recently
- Discretionary: Has been under pressure due to cyclical concerns and Covid benefits unwinding
- Tech: Remains the weakest
Right now the issue weighing on markets is not so much the rate hikes — which have been well flagged — but widespread scepticism that central banks can tame inflation without causing recession, says Crispin.
May
5
5
How to think about cash right now, China’s impact on fixed interest and global equities, a critical juncture for Aussie equities
Crispin Murray’s weekly ASX outlook
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Crispin Murray’s weekly ASX outlook
This is a critical juncture in terms of which way markets break, says our head of equities Crispin Murray.
“Signs of stress are building in markets but we are also seeing weak sentiment and some pockets that look to be oversold.”
Crispin points to three areas of concern:
- The US dollar’s current strength can be a problem for markets since it complicates the ability to contain inflation outside the US. It also leads to potentially significant capital outflows and puts strain on emerging markets. Markets tend to be more volatile when currencies are not stable.
- Credit markets continue to deteriorate as the US high-yield credit default swap index moves higher. It has more room to go as the economy slows.
- The correlation between bonds and equities appear to have reversed. Correlation has been low post-GFC, where bonds offered protection against equity sell-offs. It is now high, making it harder for investors to hedge portfolios. This has an impact on the amount of money investors can deploy in equities – as does recent high levels of volatility.
Apr 28
How the oil price is affecting sustainable investors, impact of falling Yen on equities, pre-election rate rise on the cards, what’s driving China sentiment
Crispin Murray’s weekly ASX outlook
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Crispin Murray’s weekly ASX outlook
Concern about Chinese economic growth remains a major factor influencing equity and bond markets.
Five factors have caused a rapid deterioration in sentiment on China’s outlook, says our head of equities Crispin Murray:
- Lockdowns choking demand and supply chains
- Currency appreciation relative to competitors
- Global slowdown
- Weak consumer confidence
- Property market remaining fragile
It’s estimated that a quarter of China’s population — in 44 cities and accounting for 38% of GDP — are in some form of lockdown.
Chinese growth could slow from 4.8% in Q1 to less than 2% in Q2, he says.
“The policy response so far is regarded as too limited.
“We think the structural story in commodities remains attractive. But there is a sense it is a very long position among investors at the moment.”
Apr 21
Generational shift drives ESG opportunity, which fixed interest funds are well placed for rising yields, what’s next for China and beware the ‘brownium’
Crispin Murray’s weekly ASX outlook
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Crispin Murray’s weekly ASX outlook
The recent recovery in equity markets looks to be ending as the S&P 500 fell -1.2% and the NASDAQ -3.9% last week.
Australia remains more defensive in this environment, falling just 0.3% for the week. More hawkish comments from the Fed prompted the fall.
It signalled a 50bps hike in rates for May, absent any major new shock. It also reinforced the message that quantitative tightening is on its way. While this was known, it triggered a further sell off in long-dated bonds.
US 10-year Treasury yields rose 32bps for the week. It also took the yield curve back into positive territory.
This reinforces the key message that the Fed needs overall financial conditions to tighten sufficiently to cool wage inflation.
Surging equity markets loosen overall conditions, and the Fed is likely to try and prevent this.
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