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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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These podcasts are for general information purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. They have been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on the information, consider its appropriateness having regard to their or their clients’ individual objectives, financial situation and needs. The information is not to be regarded as a securities recommendation.
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Tim Hext: Hold course in the face of Trump’s whipsaw tariffs
Investors could not be blamed for feeling a bit queasy at Donald Trump’s whipsaw approach to tariffs.
“The tariff threat does add to this argument that inflation isn’t about to come down anytime soon,” says Pendal’s head of bonds strategies Tim Hext in our latest Fast Podcast.
“The market is right to be a little bit concerned. Obviously free trade – or some version of free trade generally benefits both parties.
“The law of comparative advantage says you end up focusing on what you are a cheap producer of. If you start to throw sand into the gears of free trade that’s not a good thing.
“Ultimately, I think it is bad for growth and will mean slightly higher inflation, but not enough to suddenly cause rate hikes in the near future.”
“It creates a lot of short-term noise, but fortunately investors with a medium-to-long-term time-frame can leave it to people like me to worry about that.”
Tim says investors should hold course for now.
Rates, China, Trump: Pendal’s Amy Xie Patrick on the trends that will shape 2025
Play podcastRates, China, Trump: Pendal’s Amy Xie Patrick on the trends that will shape 2025
One of the surprises of 2024 was the absence of rate cuts in Australia. What happened and how long will the Reserve Bank sit on its hands? Pendal’s head of income strategies AMY XI PATRICK explains in this review of 2024.
Amy Xie Patrick: How to replace hybrids as they disappear from income portfolios
Play podcastAmy Xie Patrick: How to replace hybrids as they disappear from income portfolios
Pendal’s head of income strategies Amy Xie Patrick recently wrote about the phase-out of hybrids and which kinds of assets might make a good replacement in income portfolios.
And in her latest podcast, Amy runs through some of the options for different kinds of investors.
Retail investors are likely to look for substitutes in term deposits and equities – though neither are a like-for-like solution, she argues.
TDs reduce liquidity and may not be a long-term solution as rates come down, she points out.
Equities with a dividend and franking credits can replace income, but they come with increased portfolio volatility compared to hybrids.
Amy also argues that an actively managed fixed-income portfolio can be a better solution.
As an investor, Amy blends high-quality investment-grade bonds for income, equities to help capital grow, and government bonds to manage the portfolio through the rates cycle.
“We try to bridge that gap between what the investor wants and what is currently available.”
Listen to the podcast here
ESG: How the world’s most innovative companies are using AI to drive sustainable outcomes
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Regnan: Make sure your sustainable investments manager is a good ‘engager’
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Regnan: Make sure your sustainable investments manager is a good ‘engager’
It’s no surprise that corporate engagement and shareholder action have become one of the most common responsible investment approaches in Australia.
Engagement generally refers to the process of active asset managers “engaging” directly with investee companies and bond issuers to influence corporate behaviour and achieve better outcomes for investors and the community.
More than half of investment managers in our region now have stewardship codes (which generally include an engagement component), according to the Responsible Investment Association of Australasia.
Engagement is a critical component of the investment process for sustainable investor Regnan – and senior analyst Laura Sheehan sees it as an essential tool.
“We need to be able to identify companies that are willing to engage with us,” she says.
Engagement is a two-way relationship, and the key is to have a deep understanding of the business and the industry in which the company operates.
“If you’re asking for things that aren’t realistic, or show you don’t understand the business, that’s going to impact your influence and the willingness of management to engage more broadly.”
Laura explains more here
Debunking a myth about fossil fuels and sustainable fixed interest
Play podcastDebunking a myth about fossil fuels and sustainable fixed interest
High fossil fuel prices can understandably discourage investors from allocating to sustainable strategies.
Sustainable portfolios generally exclude exposure to fossil fuels, which may mean underperformance when oil prices rise, for example.
But that’s not necessarily the case across all asset classes, says Pendal’s head of credit and sustainable strategies, George Bishay.
“There’s a perception that all asset classes face these potential performance risks when prioritising sustainability.
“But Australian sustainable fixed-income exhibits minimal sensitivity to oil markets or any other screened activities,” writes George in a new Pendal paper.
Fossil fuel companies typically make up a large part of equities indices (about 15 per cent of the ASX300 in July 2024).
But issuers involved in fossil fuel extraction, exploration or refining are a small component of the Australian fixed-income benchmark.
“This differentiation allows investors to integrate sustainable fixed income into their overall core fixed-interest allocation with minimal additional benchmark risk,” says George.
“By incorporating Australian sustainable fixed income alongside other traditional assets, investors can achieve a robust portfolio while also supporting climate stability or the underserved in society.”
Tim Hext: Why Aussie fixed-income investors can largely ignore a potential August rate hike
Play podcastTim Hext: Why Aussie fixed-income investors can largely ignore a potential August rate hike
Australia appears to be at different stage of the rate cycle compared to international peers – a “lagging cycle compared to the rest of the world”, as Pendal’s Tim Hext puts it.
“Globally, people are looking at very high interest rates and going, ‘We just don’t need them anymore.’
“In Australia, though, inflation’s proven to be quite sticky around 4 per cent in the last couple of quarters. The RBA’s patience is being tested.”
August is a live meeting in terms of potential rate changes and next week’s CPI figures will be key to the decision, says Tim – Pendal’s head of government bond strategies – in a new fast podcast.
A higher-than-expected number could prompt a hike. A lower-than-expected number would mean rates stay where they are.
However, if an August rate hike eventuates, investors should largely ignore it, he argues.
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