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A ray of sunshine in the farm sector
March 04, 2022
Amid all the disheartening news this week there was a bright spot in Australia’s GDP numbers. ANNA HONG explains in our weekly Income and Fixed Interest note
IT HAS been a tough week filled with geopolitical and humanitarian tensions, as well as the flood crises impacting us.
Clearly there is plenty of bad news to go around and our thoughts are with everyone impacted.
Market volatility is making portfolio positioning challenging — we still believe rate hikes and rising yields are on the agenda in the medium-term.
But this week’s Australian GDP numbers brought a much-needed pleasant surprise.
A bright spot for a once hard-hit industry reminded us of the general resilience of the wider economy.
The Farm sector posted a 9 per cent growth in the last quarter and a whopping 50 per cent growth since the 2019 droughts as you can see below:
While March 2020 will always be associated with the outbreak of Covid globally, that month was significant in Australia for other reasons.
At that time Australia suffered through hailstorms, cyclones and bushfires to cap off a horror run of droughts from 2017 to 2019. That led to Farm GDP declining 22% in that period.
Australia experienced its warmest and driest year on record in 2019. Large areas were affected by high temperatures and well-below-average rainfall.
Those conditions contributed to one of the worst bushfire seasons on record.
Fast forward to 2021-22 and the cooler La Nina weather pattern is painting a very different picture, as these maps from the Bureau show:
Outlook
This recovery demonstrates the resilience of the Australian society and economy.
Growth has rebounded, unemployment is down, prices are higher.
The agriculture industry presents the same thematic as the broader economy. It’s now running close to full capacity with labour shortages a significant constraint, leading to rising prices.
Despite geopolitical issues and setbacks from the flood, we are now firmly in a rate hike cycle globally as central banks stay focused on tackling inflation.
Until the dust settles, it remains to be seen if demand-led inflation or stagflation (covered by our head of government bonds Tim Hext in last week’s weekly note) will emerge as the front-runner.
Find out about
Pendal’s Income and Fixed Interest funds
About Anna Hong and Pendal’s Income and Fixed Interest team
Anna Hong is an assistant portfolio manager with Pendal’s Income and Fixed Interest team.
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia. In 2020 the team won the Australian Fixed Interest category in the Zenith awards.
With the goal of building the most defensive line of funds in Australia, the team oversees A$22 billion invested across income, composite, pure alpha, global and Australian government strategies.
Find out more about Pendal’s fixed interest strategies here
About Pendal Group
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at March 4, 2022.
PFSL is the responsible entity and issuer of units in the Pendal Monthly Income Plus Fund (ARSN: 137 707 996) and Pendal Dynamic Income Fund (ARSN: 622 750 734) (Funds). A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund.
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