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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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Steve Campbell: Labour data will determine timing of next RBA rate cut
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Steve Campbell: Labour data will determine timing of next RBA rate cut
A strong labour market and poor productivity meant the RBA’s rate-cut this week was not a laydown misere.
Was it a “one and done?”
“That’s highly unlikely,” says Pendal’s head of cash strategies, Steve Campbell. “So the focus will now move to when the next policy easing will occur.”
Before the next meeting in April (the first with newly separated monetary and governance boards), we will see updated wage price index data and two labour market reports.
If we don’t see a cut in April, further policy easing could still occur mid-year, Steve says.
The RBA remains “cautious and data dependent”, and didn’t give away much in its notes this week.
“Forecasting trimmed mean inflation at 2.7% until mid-2027 really means we don’t know how it will all unfold.”
Steve Campbell: The call for rate cuts appears premature
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Steve Campbell: The call for rate cuts appears premature
CALLS for rate cuts in 2024 now appear premature based on first-quarter inflation data.
Headline inflation rose 1% over the first quarter, resulting in annual inflation of 3.6%. Economists had been expecting a quarterly rise of 0.8% and 3.5% over the year.
The RBA’s preferred inflation measures – the trimmed mean and weighted median – also exceeded expectations by 0.2% for the quarter, rising 1% and 1.1%, respectively.
After moving to a neutral statement in its March meeting, it’s likely the RBA will take a more cautious, hawkish tone in its next statement in May.
That meeting will be accompanied by a monetary policy statement with updated economic forecasts.
From its February forecasts, the RBA sees annual headline and trimmed mean inflation for the year ending June 2024 at 3.3% and 3.6%, respectively.
Headline inflation has risen 2.77% since June 2023 and a trimmed mean of 2.95%. For the RBA’s forecasts to be realised, we need 0.48% and 0.6% for the next quarter.
Inflation forecasting is a tough caper, but if these annual forecasts were to be revised, they would more likely be higher than lower after today’s data.
Steve Campbell: Rate cuts unlikely before November
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Steve Campbell: Rate cuts unlikely before November
There were no surprises on Tuesday with the cash rate left unchanged at 4.35%.
Though the RBA’s statement was more neutral than February, which prompted a rally in bond yields, notes Pendal’s head of cash strategies Steve Campbell.
Where to next?
“Inflation is falling in line with the RBA’s expectations,” says Steve. It’s expected to hit the 2-3% target zone next year and keep falling in 2026.
The RBA could ease policy before then if inflation is falling sustainably. Though services inflation remains elevated, moderating only gradually.
Any rate change is likely to come at the same time as economic forecasts in the RBA’s quarterly monetary policy statement, says Steve.
The RBA can use those forecasts to justify a change in monetary policy settings or tone.
Forecasts are due in May, August and November.
“Any change to the cash rate is not going to happen in the nearer term,” argues Steve.
“November is more likely than August for any policy easing at this stage.”
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