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Income and Fixed Interest
China isn’t likely to invade Taiwan any time soon. Here’s why
It’s understandable that investors pondering their exposure to Russia’s invasion of Ukraine might also think harder about the China-Taiwan stand-off.
But a Chinese invasion of Taiwan is a very low probability event in the short or medium term, says Pendal’s Oliver Ge.
“Near term the Chinese Communist Party has other priorities at stake. President Xi has promised to rectify growing domestic discontent over diminished living standards. Housing affordability and employment opportunities are key focal points for the CCP leadership.
“In the medium term, Taiwan’s support from the US remains crucial. Remember that Taiwan (but unfortunately not Ukraine) is of great strategic importance to Washington. China has no appetite for a direct confrontation with the US.
“These points don’t negate the possibility of a conflict in the longer term. A unified China is arguably the biggest political objective of the CCP.
“But for now the carrot of economic cooperation remains the preferred policy over brute force.”
Fast podcast: Tariff uncertainty means opportunity for active investors
Play podcastFast podcast: Tariff uncertainty means opportunity for active investors
As tariff news has died down, markets have come flying back in the last few months.
“But we do have a world now where the US tariff rate on average is around 18%,” observes Pendal’s head of government bond strategies, Tim Hext.
“That is not a world we have seen for almost 100 years, not since World War II.”
But it’s an environment made for active investors, says Tim in this new short podcast.
It can take years to understand the full impact of trade tariffs, yet markets tend to be very short-term focused, he says.
“That does present a lot of opportunities for an active manager,” says Tim.
“It gives does give us plenty of good opportunities to add value in active portfolios, and that’s what we’re doing at the moment.”
Listen to Tim’s latest fast podcast here
Amy Xie Patrick: An investor’s guide to the outlook for US and China
Play podcast
Tim Hext: Australia’s in a surprisingly good position to weather the global storm
Play podcastTim Hext: Australia’s in a surprisingly good position to weather the global storm
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.
Pendal profile: Meet our head of government bond strategies, Tim Hext
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Pendal profile: Meet our head of government bond strategies, Tim Hext
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.
Pendal profile: Meet our head of credit and sustainable strategies George Bishay
Play podcastPendal profile: Meet our head of credit and sustainable strategies George Bishay
Services – particularly wages and rental inflation – have held up prices recently. But Pendal’s forward indicators show the drivers of these two factors weakening.
That means inflation in developed markets should continue to fall and central banks globally can start cutting rates, says Pendal’s head of credit George Bishay.
It’s a bullish scenario for bonds as well as credit and equity markets, he says.
But one of the risks for that scenario is a Donald Trump victory in November.
“If Trump wins the election, will he have the ability to change policy? Will he have a majority in both houses of Congress?
“If he does, that’s problematic for bonds because ultimately that’s likely to be inflationary,” says George.
The impact of a Trump presidency is more skewed towards longer-term bonds because his policies would likely have a medium-term impact on inflation, George says.
“The short end should continue to perform because central banks will be easing rates as current inflation comes down.”
Pendal profile: Meet our head of income strategies Amy Xie Patrick
Amy Xie Patrick: Turbulent conditions require a decisive, active approach to fixed income
Play podcastAmy Xie Patrick: Turbulent conditions require a decisive, active approach to fixed income
Fixed-income investors looking for lower yields – and therefore higher prices on their bond investments – may be disappointed with the recent cycle.
“When I’ve been speaking to clients over the past few weeks, many have been worried that the cutting cycle is not translating to lower bond yields in the same way we’ve seen previously,” notes Pendal’s Amy Xie Patrick in her latest fast podcast.
But investors need not be concerned, since conditions still favour a rate-cutting environment, says Amy, who leads Pendal’s fixed-income strategies.
Underlying inflation is under control – supported by a looser US labour market which has not yet been impacted by President Trump’s mooted immigration crack-down. n Australia a tighter labour market has not led to significant wage increases.
“The market’s priced in two more US cuts this year, maybe another two in Australia.
“The RBA has enough room to get back to neutral fairly quickly… And the Federal Reserve probably has the ability to move a little bit more than the market’s priced in.
“It’s still a choppy year ahead – but this is where a proven active process for duration and rates really does count for fixed-income portfolios.”
Tim Hext: Hold course in the face of Trump’s whipsaw tariffs
Play podcastTim 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
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