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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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Michael Blayney: A quick overview of asset classes right now
How are different asset classes faring in these rough conditions?
Our multi-asset chief Michael Blayney has a quick snapshot which you can read here.
Equities are “getting to the position where there’s some opportunities to buy. But we are not at the point of seeing broad-based bargains yet,” says Michael.
“US large-cap stocks remain expensive, while Australian equities are closer to fair value. Globally, small and mid-cap equities are fair value, or even cheap, relative to large caps.”
Bonds remain attractive because of their defensive characteristics, but still have significant headwinds from inflation. “Where possible, we have a preference for inflation protection and Australian exposure within portfolios.”
Investment-grade credit offers reasonable returns on a medium-term basis, Michael says.
“Higher bond yields have caused REITs to de-rate significantly, moving A-REITs and global REITs back towards fair value.”
Why it’s important to consider ESG in asset allocation
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Why it’s important to consider ESG in asset allocation
ESG has long been a critical factor in investing, but it’s often considered only at a company level, says Pendal multi-asset portfolio manager Alan Polley.
ESG should be incorporated into portfolios at an asset allocation level, says Alan.
“We know asset allocation is the primary driver of investment returns. It also explains about 90 per cent of the variation of returns in a portfolio.”
Asset allocation fundamentally involves three decisions, he says:
- Changing allocations between existing asset classes
- Changing the definition of existing asset classes
- Introducing new asset classes
Consider the example of climate change, he says. “Emissions intensity is vastly higher in Australia than global markets.
“So, if you think climate change is an important investment consideration, you might tilt away from Australian equities towards international developed markets.”
Michael Blayney: Stay diversified, cautious — and ready
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Michael Blayney: Stay diversified, cautious — and ready
A stockmarket rally has left some calling the start of a new equities bull market.
But investors should stay diversified with exposure to bonds and alternatives, says Pendal’s head of multi-asset Michael Blayney.
“You have to be cautious — when you look at history, you see the strongest rallies in bear markets.
“Inflation has moderated a little bit in the US but it’s still at an uncomfortably high level.”
Global markets remain “somewhere between fair and expensive, depending on where you look”, says Michael.
“Australian equities are probably one of the better-value markets but it’s not a bargain hunter’s paradise out there in any way, shape or form.”
The golden rule is to maintain diversification, he says.
Michael recommends exposure to bonds, foreign currency and alternatives.
Michael Blayney: How to invest in an inflationary environment
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Michael Blayney: How to invest in an inflationary environment
Investors haven’t faced the challenge of investing in a low-growth, high-inflation environment for decades.
But that’s the likely scenario right now, says Pendal head of multi-asset Michael Blayney.
For financial planners, equities mostly sit at the heart of a portfolio and provide long term growth. Now investors must diversify and be nimble to protect portfolios, says Michael.
“Financial planners should think about the things that provide portfolio diversification away from just equities. And that’s bonds, currency and alternatives.
“Unless you have a wonderful crystal ball, you need to own all of them.
“There are assets like commodity futures which have followed the pattern of the early 1970s, though have come off a bit more recently.
“Real assets can be attractive in the listed infrastructure space, where you do get inflation-linked cash flows.”
MICHAEL BLAYNEY: The case for a balanced portfolio
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MICHAEL BLAYNEY: The case for a balanced portfolio
One of the simplest and best ways to incrementally improve long-term investment outcomes is to rebalance — trim after strong price increases and top up after falls — says our head of Multi-Asset Michael Blayney.
“In the present environment, this would naturally lead investors to trim cash and alternatives and top up cheaper equity and bond holdings.”
Equity markets tend to fall about one year in three — meaning they rise the other two, Michael points out.
“Investing in a globally diversified portfolio — with a mix of equities, bonds, alternatives, property and cash — has proven a sound strategy for long-term wealth creation over many decades, through wars, pandemics and a host of economic crises.
“Conversely, panicking after large market falls and selling has, generally, been a wealth-destroying activity for investors.
“You see classic examples of that behaviour at work in 2008 and early 2020.
“We continue to believe investors should ‘stay the course’ in respect of their long-term strategies.”
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