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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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This innovator has an answer to a big AI problem
Nvidia’s stock price is soaring – and so are the carbon emissions caused by all the processors the chipmaker is churning out for power-hungry AI developers.
German-listed Aixtron, which supplies technology that helps the manufacture of computer chips, is at the forefront of trying to solve this problem.
“Artificial intelligence doesn’t exist in the ether – its computing power requires a vast infrastructure of data centres,” says Maxime Le Floch, an analyst with Regnan Global Equity Impact Solutions fund .
“One of the technologies that can help solve this issue is the use of compound semiconductors like gallium nitride, where Aixtron is a market leader.”
Gallium nitride can reduce the energy consumption of a data centre by 20 per cent, leading to a 10 per cent reduction in data centre operating expenditure, says Le Floch.
“Companies that can provide compelling solutions for these kinds of problems typically experience very strong growth and long term, compounding earnings.”
Tim Hext: It’s ‘so far, so good’ on rates and the economy. But what’s next?
Play podcastTim Hext: It’s ‘so far, so good’ on rates and the economy. But what’s next?
After the latest inflation results, you’re probably thinking “so far, so good” on rate rises and the economy.
The worst of inflation at 8-10% appears to be behind us, with numbers heading to 3-4%.
No evidence yet of a sharp slow-down and most fixed mortgage holders seem to be adjusting ok to higher rates, partly due to strong employment.
What’s next for investors? Our head of bond strategies Tim Hext gives his view in our latest fast podcast.
“It’s a very mixed picture and with managing money, you’ve got to respect that for now.
“The mega trends are probably on hold for the next six to 12 months, but we’ll be keeping a very close eye on everything to see what emerges.”
Global equities: Where to look for AI winners
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Global equities: Where to look for AI winners
Looking for exposure to artificial intelligence?
Go beyond big tech and look for companies using AI to improve efficiency or competitive advantage, says Pendal global equities analyst Sue Scott.
For example, copper miner Freeport-McMoRan has lifted output by as much as 5 per cent at some of its facilities using AI. Energy group Total is using AI to help deploy solar to its worldwide service station network.
“There’s a lot of hype factored into what AI means for future earnings,” says Scott.
“But our focus has been looking at the companies where AI is being successfully used as a tool for productivity and product development.
“Some companies will be faster than others. Our investment philosophy is always to own the dominant players in any particular market.
“To keep their edge, it’s important for us to see that they’re at least looking at these kinds of technologies.”
Green bonds: What are they and how do you choose the right ones?
Play podcastGreen bonds: What are they and how do you choose the right ones?
The Albanese government is getting ready to launch Australia’s first sovereign green bonds, which will fund public net-zero projects.
As with all new green bond issuances, investors will be looking to make a good return and a positive impact.
When it comes to impact, investors should be looking for “additionality” in the projects funded by Albo’s green bonds, say Pendal’s head of credit and sustainable strategies George Bishay and ESG credit analyst Murray Ackman in our latest fast podcast.
“In other words, is it actually a step change?,” asks George. “Is it just refinancing an old project or is it a new project?”
Sovereign green bonds should be able to fund bigger, riskier, more interesting projects.
“We’re wanting to see projects that bring about some kind of revolutionary change,” says Murray.
“For example, in the US we’ve seen the Inflation Reduction Act has created a market for hydrogen by subsidising it significantly.”
Tim Hext: Soft landing more likely but don’t hold your breath on rate cuts
Play podcastTim Hext: Soft landing more likely but don’t hold your breath on rate cuts
It looks like RBA boss Phil Lowe’s “got one more hike he’s itching to do” in July or August, says our head of bonds Tim Hext in our latest fast podcast.
Inflation data would then start to turn down and the RBA would likely pause the rest of the year, Tim reckons.
The US could potentially start cutting rates early in 2024, he says.
“With that backdrop, there is a possibility Australia could get lower rates in the second half of next year, even if inflation – and particularly wages – remain a bit sticky.”
Tim argues investors should therefore consider 10-year bonds as they hover around 4%. Australian cash rates will eventually settle down in the 2% to 3% band, he believes.
“It’s a bit like mortgage holders two years ago should have locked in fixed rates for their mortgages.
“Now I reckon investors ought to consider locking in fixed rates for their investments.”
New weight-loss drugs offer solution to the obesity crisis
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New weight-loss drugs offer solution to the obesity crisis
Demand for a new generation of weight-loss drugs such as Novo Nordisk’s WeGovy is soaring — particularly in the US where demand is outstripping supply.
Bloomberg estimates global sales of branded anti-obesity drugs could hit $US44 billion by 2030.
While medications are not the only solution, “they are one revolutionary step forward in countering the [obesity] epidemic” noted Scientific American recently.
Some doctors say drugs like Wegovy “could help stem a tide of weight-related conditions such as heart disease or joint pain”.
Sustainable investing leader Regnan, which is part of the Pendal (and now Perpetual) family, is a long-term investor in Novo Nordisk.
“We like companies that have a relentless pursuit of continuous innovation,” says Regnan’s Maxime Le Floch says. “We want companies that innovate, have brand awareness and can build a market from scratch.”
“The main issue Novo Nordisk has had recently is keeping up with demand.”
Barbie might be queen, but content is king when investing in Hollywood
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Barbie might be queen, but content is king when investing in Hollywood
Global equities investors observing the Barbenheimer phenomenon might be wondering how to get exposure to Hollywood right now.
Blockbuster films Barbie and Oppenheimer may be breaking box office records.
But all the hype can’t hide the fact that showbiz is a complex investment environment with actors and writers strikes, a super-competitive streaming market and the challenge of AI-generated content.
“For investors, it comes down to the age-old adage, ‘content is king’”, says Sue Scott, senior investment analyst for Pendal Concentrated Global Share Fund.
Sue and her team are investors in Warner Bros. Discovery – the studio behind Barbie – as well as Netflix.
The writers and actors strike – which could last into next year – underlines the importance of choosing companies with a good library of content such as Netflix and Warner, says Sue.
Fast podcast: Three things blunting the impact of rate rises on inflation
Play podcastFast podcast: Three things blunting the impact of rate rises on inflation
Inflation isn’t yet under control and the RBA still has work to do, argues Oliver Ge, an assistant portfolio manager with Pendal’s income and fixed interest team.
“I think at 4.1% we’re still at least a couple of hikes away,” argues Oliver in our latest fast podcast.
“Depending on where wages and inflation land later this month, we possibly could follow the path of New Zealand or the UK into the 5.5%, possibly 6% region.”
Oliver points to three things blunting the impact of rate rises: “Firstly, the Australian economy is demonstrating a level of resilience that’s greatly surpassed most expectations.
“Secondly, there seems to be a wage-price spiral in certain aspects of inflation that continues to channel within the CPI basket, so it persists at a level that warrants concern.
“Thirdly, despite market chatter about the potential fallout from high interest rates – particularly for mortgage holders – our analysis shows that Australians, on aggregate, aren’t as vulnerable as one might assume.”
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