Crispin Murray: Uncertainty creates mis-pricing and opportunity for active investors

There are opportunities in Aussie equities for investors willing to look through the noise, says Pendal’s head of equities CRISPIN MURRAY in his bi-annual Beyond The Numbers webinar

• Uncertainty creates mis-pricing and opportunity
• Find out about Pendal Focus Australian Share fund
• Watch Crispin’s latest Beyond the Numbers webinar

ECONOMIC uncertainty, recession fears and swerving policy changes from the US Trump administration are creating opportunities for investors willing to look through the noise, says Pendal’s head of equities Crispin Murray.

An index of economic uncertainty spiked to levels not seen since the pandemic in February amid debate about the effects of US policies on tariffs, federal government spending cuts, and deportations.

Murray says the uncertainty is causing companies and consumers to defer spending decisions – which will ultimately affect economic growth – while also causing mispricing in markets as investors second guess the outlook.

“We’ve got uncertainty at stock levels, sector level, policy, geopolitics – everything is creating confusion,” says Murray.

“To be frank, we actually like this confusion. We like this uncertainty because uncertainty creates mispricing and it plays to our strength.

“That’s why we still believe, while the broader market trends for lower returns, there is still lots of opportunity to add value for our investors.”

Murray was speaking at the bi-annual Beyond The Numbers webinar after the February ASX earnings season.

Still Biden’s economy

Murray says it is increasingly clear that Trump is keen to attribute the first-half performance of the US economy to the previous Biden administration, indicating that he may be willing to wear prolonged uncertainty and weakness.

“That may be self-serving, but that’s the way they see it. Therefore, if we have uncertainty or weakness in the economy in the near term, they don’t see it as their issue,” he continues.

“To us, that would suggest that they are using this first few months of the year to do the hard yards on trying to get better outcomes in terms of trade, using tariffs as a stick, and this uncertainty period will extend for a few months.”

Markets fell this week after Trump said the US economy would see “a period of transition” and refused to rule out a recession.

For investors, Trump’s reform-driven agenda may turn short-term uncertainty into long-term gain, says Murray.

“Ultimately, we do believe this administration is here to drive growth, to drive markets, and will do what it takes to try and underpin that.”

Positive factors

Despite the uncertainty and likely growth slowdown looming over markets, there are some significant positive factors weighing in investors’ favour.

Central banks are in an easing cycle and rate cuts mean financial conditions have moderated, while liquidity remains supportive due to the US debt ceiling restricting net issuance of new bonds.

Pendal Focus Australian Share Fund

Now rated at the highest level by Lonsec, Morningstar and Zenith

Read more

“It is a bit of a safety net,” says Murray.

“If we do see a slowing in the economy, there is room for the Fed to ease. There’s room for bond yields to come down, and that could act as a mitigant for some of the short-term uncertainty.”

Australia sluggish, but downturn unlikely

Domestically, the Australian economy looks set to avoid a significant downturn as real disposable income holds up due to the effect of tax cuts, interest rates, higher wages, and moderating inflation, says Murray.

“We’re back to the pre-COVID era 2-to-3-per-cent real disposable income growth that should underpin consumption,” he says.

Recent data from the Commonwealth Bank of Australia show essential spending has slowed as inflation comes down, giving households more money to spend on discretionary purchases and reducing the need to draw down on savings.

Despite that support, Australia faces significant challenges.

“Productivity growth … has clearly stepped down,” says Murray.

“Some of this can be explained away by the mining sector, but there’s still underlying issues with our ability to drive productivity, and that creates issues for longer term growth.

“We really have become more like Europe than the US, and that ultimately is not great for corporate earnings in Australia.

“It also constrains the ability for the RBA to cut interest rates because of that lack of productivity growth.”

Murray says these “challenges for the next government are going to be difficult to address”.

About Crispin Murray and the Pendal Focus Australian Share Fund

Crispin Murray is Pendal’s Head of Equities. He has more than 27 years of investment experience and leads one of the largest equities teams in Australia. Crispin’s Pendal Focus Australian Share Fund has beaten the benchmark in 12 years of its 16-year history (after fees), across a range of market conditions.

Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management. 

Find out more about Pendal Focus Australian Share Fund  

Contact a Pendal key account manager