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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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Global equities: What to look for when investing in AI
Which companies will benefit from AI technology in the long term? Which are just caught up in a short-term frenzy?
It’s about more than investing in companies providing computing power or AI services, says Sue Scott, an analyst with Pendal’s Concentrated Global Share Fund.
“When we talk to companies, we’re looking for signs that the board and management are examining how the technology can improve their products and services and increase productivity.
“Does the board have technical expertise? Are management introducing pilot programs? Are they thinking about the ways they can harness AI to improve productivity?
“We also want to know a company has a strong governance framework around what they’re doing with regard to AI.”
“They’re the sorts of things were asking any of the companies we invest in.”
Fast podcast: Why now could be a good time to lock in 10-year bonds
Play podcastFast podcast: Why now could be a good time to lock in 10-year bonds
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.”
Three ways impact investing can help diversify equities portfolios
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Three ways impact investing can help diversify equities portfolios
Impact investing works in three ways to provide diversification to traditional equities portfolios, says Tim Crockford, who heads up Regnan’s impact investing team:
- Good exposure to smaller and mid-cap companies
- Early access to future growth stocks focused on new, emerging market segments
- Long investment time frames
Impact investing funds such as Regnan Global Equity Impact Solutions Fund focus on identifying the listed companies best placed to solve the world’s biggest problems.
Right now stocks equities in the $1 billion to $10 billion range are trading relatively cheaper than their larger counterparts – an inversion of normal patterns driven by appetite for US mega-cap tech stocks, says Tim.
“You’d normally expect to pay a premium for small companies because they tend to have higher growth rates,” says Crockford. “But something has changed across 2022 and many smaller caps are now trading at a lower PE multiple than large caps.
Fast podcast: How a weaker China could be good for bonds
Play podcastFast podcast: How a weaker China could be good for bonds
China has emerged quickly from zero-Covid, but a property slowdown is holding the economy back.
What does that mean for fixed income investors?
“When the property sector is in a slump, it means that confidence from the private sector generally is in a slump as well,” says Pendal’s head of income strategies Amy Xie Patrick.
“That’s leading to a lot of the recent data showing that the initial momentum from China’s reopening story seems to be petering out.
China’s weaker domestic demand and falling Producer Price Index will continue to drag on the global inflation story, “which is good for bonds”, argues Amy.
“We think there are many strong reasons both cyclically and structurally to be favoring fixed income and bonds in portfolios right now.
“The way the China growth story is shaping up for 2023 presents as one of the top reasons to be buying bonds right now.”
FAST PODCAST: What wages and jobs are telling us about recession and rates
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FAST PODCAST: What wages and jobs are telling us about recession and rates
Consumers are feeling gloomy but are we still headed for recession?
With inflation “sufficiently well-behaved”, the main factors to watch are now unemployment and wages, says our head of bond strategies Tim Hext in our latest fast podcast.
“I think in the US it’s still the case that we are going to have a very mild recession at some point.”
While it’s taken longer than expected, the impact of 5.25% of rate hikes in just over a year are starting to show through among consumers.
“The one thing that’s keeping the US economy ticking over still quite well is employment.”
Jobs and wages should remain “not strong, but well-behaved” this year, which should stop any chance of near-term rate cuts, says Tim.
In Australia the chances of recession are far lower due to population growth, he says.
“But there is definitely a possibility we’ll have a GDP per capita recession. In other words, the economy will be better off but individually we may not feel that way.”
Fast podcast: Be prepared for more US bank turmoil
Play podcastFast podcast: Be prepared for more US bank turmoil
How should bond and fixed interest investors think about the turmoil among US regional banks?
In our latest fast podcast, Pendal assistant portfolio manager Oliver gives a plain language explanation of what’s going on, and why he believes the turbulence may not be over.
“The problems with First Republic and SVB are not unique,” says Oliver.
“There are potentially cracks opening up in the 5th, 6th, 7th, and 13th largest banks.”
If further failures occur, investors may be over-confident that the Federal Reserve will continue to launch rescue missions, says Oliver.
The relatively mild market response could suggest “a disconnect between what investors are pricing in and what’s actually happening”, he says.
In the podcast, Oliver explains what that could mean for investors – and why he believes cash and government bonds are an important consideration for portfolios right now.
Global equities: What equities investors need to know about hack attacks
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Global equities: What equities investors need to know about hack attacks
After the recent Optus and Medibank data breaches, stockmarket investors may be wondering how to assess a company’s ability to withstand a hack attack.
“Understanding the risk, and what management is doing to mitigate the risk, is critical,” says senior global equities analyst Sue Scott.
Sue gives the example of Spanish financial services giant CAIXA, which is held in Pendal Concentrated Global Share Fund.
“They receive 74 attacks every hour,” says Sue. Yet CAIXA hasn’t experienced a successful critical attack, she says.
Before investing, Pendal scrutinised CAIXA’s preparedness for cyber-attacks and mitigation efforts. “Importantly we saw very clear roles and responsibilities.
“It had a corporate-wide cyber policy, a specialised cyber security committee, an audit team, three board members with specific technical expertise and relevant management KPIs.”
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