Murray joined Pendal in June 2020 to provide fundamental credit analysis and integrate ESG across credit funds.

Before joining the team, Murray worked as an independent consultant measuring ESG for family offices and Private Equity firms. Prior to this Murray was a Research Fellow at the Institute for Economics and Peace where he led research for the Institute on the Sustainable Development Goals, violent extremism and engagement with business, which included projects determining the strategic priorities and direction of clients such as UNDP and the OECD. He has also worked as a management consultant and for a welfare organisation.

Murray holds a Bachelor of Arts in Politics and International Relations, a First Class Honours degree and a Bachelor of Law from the University of New South Wales.

The cement industry accounts for about 8 per cent of global greenhouse gas emissions. French-based Hoffmann Green Cement has a potentially lucrative solution

• Innovative solution to one of the biggest emissions conundrums
• Potential long-term upside for investors
• Find out more about Regnan Global Equity Impact Solutions

THE cement industry is one of the world’s biggest carbon polluters.

It is the most widely used human-made material across the globe with about 4.6 billion tonnes produced each year. And it’s remained largely the same for centuries.

“The story goes that if the Roman emperors were in the world today, one thing that would still be familiar to them is cement production,” says Maxime Le Floch, an investment analyst focused on equity impact solutions at Regnan.

It’s an industry that hasn’t innovated very much. Until now.

French-based Hoffmann Green Cement Technologies is changing the way cement is manufactured, drastically reducing the amount of greenhouse gases emitted in the process of creating concrete.

“The reason we got interested in the company is because we need to decarbonise the economy,” Le Floch says candidly.

“The cement industry accounts for about 8 per cent of global greenhouse gas emissions. That’s a big share of industrial emissions, which is going to stand out even more as other sectors decarbonise.”

Hoffmann Green’s breakthrough was to eliminate the use of clinker in the creation of cement.

Clinker is a mix of limestone and minerals that are heated in a kiln as part of the cement making process. This releases enormous amounts of carbon dioxide.

Eliminating clinker substantially reduces the amount of CO2 released into the atmosphere during the production of cement.

“Hoffmann Green reduces the carbon footprint of cement by a factor of five,” Le Floch explains so was an obvious option for Regnan to consider.

Regnan thinks about stocks in terms of impact, value creation, value distribution and value gap. The impact Hoffmann Green can have in terms of reducing carbon emission is clear.

“Most of the innovation happening in the cement industry is incremental, around existing technology. But Hoffmann Green has removed the clinker chemical reaction in making cement and that’s quite dramatic.”

Hoffmann Green also ticks the value creation box, in part because its competitors aren’t innovating fast enough, burdened by existing infrastructure that risks becoming stranded. Cement is generally a relatively localised industry because of costs associated with transporting the product long distances.

“Hoffmann Green can come in, have a product that’s much more radical and better for the environment, and there’s demand for that. They are able to charge about twice the price of normal cement because of the green credentials.” 

[Hoffmann] are able to charge about twice the price of normal cement because of the green credentials.

Maxime Le Floch, Regnan investment analyst

Hoffmann Green’s process also means the energy bill to produce cement is lower, reducing the group’s cost base.

“The cost base is quite low. The capital requirements on new sites are much lower than other cement companies. There’s a lot more operating leverage as they scale up,” Le Floch says.

“In terms of value distribution, this is a relatively small company that’s scaling up,” he says. “They’re very committed to sustainability. It’s quite an automated process that doesn’t involve large amounts of industrial heat for instance … so it’s also a much safer process for employees compared to other types of cement making.”

A company like Hoffmann Green should benefit in the future because as they grow, their value proposition will become more evident to customers, who are being pushed to de-carbonise.

“Hoffmann Green is relatively small – a half a billion Euro market cap. It’s the smallest company we have. But as they scale up, we will have the opportunity to scale up,” Le Floch says. “They are in an investment phase. They are building new sites.”

He argues there’s plenty of opportunity for the company. There’s a potential for more sites. There’s also a benefit when carbon prices increase, because customers will be look for low CO2 emission options. And there’s an option for an international licensing model.

Of course, every investment carries risk.

“The key risk is in execution,” Le Floch says. “It’s in delays to building out their manufacturing and production capacity. There is always a technology risk with new processes, though I think that’s reducing over time as they get more confirmation from customers using their cement. And there will be other competitors emerging in the pathway to decarbonisation.”

“But Hoffmann Green has been able to hit its key milestones in terms of its product being validated. There’s a new innovation cycle in the economy around decarbonisation and sustainability more generally … and Hoffmann Green is at the cutting edge.”

Elise provides fundamental company analysis for our Australian Equity large cap strategies. Elise previously worked as an investment analyst for US fund manager Cartica where she covered a variety of emerging market companies. Prior to Cartica, Elise worked in investment banking and corporate finance at JP Morgan and Ernst & Young. Elise holds a Bachelor of Commerce and Economics from the University of Queensland and is a member of the Institute of Chartered Accountants Australia.

Quality oil and gas companies are transforming. That’s where opportunities lie says Pendal’s head of global equities, Ashley Pittard.

• There are strong earnings tailwinds behind oil companies
• Buying into transforming oil giants can be earnings and green positive
• Find out more about Pendal Concentrated Global Share Fund

HOW should investors think about oil companies? 

They aren’t the most environmentally friendly companies in an increasingly green world. And they haven’t attracted many investor friends recently with activist shareholders aggressively challenging boards.

Not that the activists have necessarily been wrong.

Banks in the US — the home of ExxonMobil, Chevron and ConocoPhillips — have formed the Net-Zero Banking Alliance, which wants virtually zero lending to carbon producing companies by 2030.

A recent court decision in the Netherlands effectively said Royal Dutch Shell — Europe’s biggest oil company — needs to reduce carbon emissions by 45 per cent by 2030. And in the middle of last month, the European Commission released its Fit for ’55 roadmap to zero carbon emissions in Europe, as a continent, by 2055.

But oil companies comprise more than 6 per cent of the market capitalisation of companies around the globe. Their output, literally, makes the world move around and will be in demand for decades to come.

It’s an investors dilemma, says Ashley Pittard, Pendal’s head of global equities.

“Oil companies will have to limit their capital expenditure which means production growth will be slower and prices will remain strong,” Pittard says.

“And that means oil companies will have significant free cash flow so we should expect buybacks, dividends and investing in greener technology like wind, hydrogen and batteries.”

Valuations on the companies are compelling, Pittard says, trading around six to eight times earnings.

“They are trading below, or significantly below, their replacement value, and they’re on a dividend yield of 6 per cent. And while much of the rest of the market is at near record levels, oil company prices are flat.”

So, there’s clearly opportunity. But what about the green question?

“It’s better to be in the tent, buying businesses and enacting change via proxy voting then saying we’re just not going to fund these businesses,” Pittard explains.

But that doesn’t mean its okay to buy any oil company.

“We will screen out stocks that structurally that can never change,” Pittard says, giving the example of tobacco companies.

“But some oil companies can change and the best example is TotalEnergies. Over the last five years that have spent a significant amount of their free capital on battery farms, wind farms and gas. They have used their free cash flow to reinvent themselves.”

“Total is already at the front end of being green among the integrated oil companies. They are investing in renewable technology. But other companies are being dragged to the table.”

In essence, investing in oil companies that benefit from the current market conditions, and are using cash flow to shift into renewables is a way of having your cake, and eating it too?

“It’s better to be in the tent, buying businesses and enacting change via proxy voting then saying we’re just not going to fund these businesses.”

Ashley Pittard, Pendal’s head of Global equities

“In the short term, tailwinds of limited capital expenditure and higher oil prices are attractive. But in the long term, automobiles are becoming electric, notwithstanding there will be a long tail of vehicles,” Pittard says.

“What you will see over time is the best oil companies becoming more like wind generation companies, or battery technology companies.

“Ironically that will reduce cyclicality among the integrated oil companies and they will end up with a business model which is more like a utility companies.

“You can invest in oil companies so long as they are doing a good job reinventing themselves, increasing their focus on wind technology, battery technology, solar and the rest.

“That way you can get the upside of them being an oil company today.”

About Ashley Pittard and Pendal Concentrated Global Share Fund

Ashley Pittard leads Pendal’s Global Equities investment boutique. He is responsible for setting the strategy, processes and risk management for the boutique and its funds including Pendal Concentrated Global Share (COGS) Fund.

Ashley has more than 24 years of finance experience, including roles in petroleum economics, global energy investment analysis and 20 years as a global equities fund manager.

Pendal COGS Fund is an actively managed, concentrated portfolio of global shares diversified across a broad range of global sharemarkets.

Find out more about Pendal Concentrated Global Share Fund

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

Contact a Pendal key account manager here.

Rachel is an Investment Analyst for our Smaller Companies team, providing fundamental analysis on a range of companies within the ASX ex-100 universe. Previously, Rachel was an Investment Analyst covering smaller companies for NAOS Asset Management and First Sentier Investors, where she began her career in their graduate program. Rachel holds a Bachelor of Commerce (Actuarial Studies and Financial Economics) from the University of New South Wales and is a CFA Charterholder.

Emerging markets investors need to take great care when choosing tech-related stocks right now. Here, Pendal’s EM team JAMES SYME, PAUL WIMBORNE and ADA CHAN explain why

• Find out about Pendal Global Emerging Markets Opportunities fund

JULY was a strong month for emerging market equities.

The MSCI EM index returned 6.2% in USD terms, with strong gains from some major groups of stocks.

Chinese internet names performed well, including some key portfolio holdings.

Some emerging market banks rose strongly, including portfolio holdings in Mexico and South Africa. Turkish (not held) stocks rose strongly on hopes for more orthodox economic policies.

By far the strongest gains, though, were in parts of the broader technology sector — especially stocks with exposure to electric vehicles or batteries, and stocks that are possible artificial intelligence beneficiaries.

We see multiple signs that there may be excessive optimism in some of these stocks.

We’re not taking a view on particular companies or business models — and we’re not saying these upward moves are finished.

But it’s worth highlighting some of the market dynamics we saw in July:

1. Huge volumes and parabolic price moves driven by retail investors

This has particularly been the case with the Korea EV and battery sector.

These stocks represented nearly half the total Korean stock market turnover on some days in July, driven by retail investor leverage rising to a record 10 trillion South Korean won.

Key to stock selection has been a Korean YouTube presenter Park Soon-hyeok, better known as ‘Mr Battery’.

Six of his eight recommended names rose more than 40% in the month. The strongest of them, Ecopro (not held), was up 1059% this year at the time of writing.

There have also been a raft of new issuance in Korean EV/battery ETFs in recent weeks.

2. The strongest moves are in names that might have quality challenges

Chinese online education play New Oriental Education (not held) returned 49.8% in July. It’s previously been the subject of short-seller allegations of dishonesty and a crackdown on online education by the Chinese government.

NIO (China, EV, not held) lifted 58% in July, though it’s forecast by consensus estimates to have a net loss of US$2 billion on $8.9 billion of sales this year.

Nio underperformed XPeng (China, EV, not held), which rose 74% in the same period, despite expectations it will lose $1.2 billion on $4.5 billion in sales.

Oh, and in May of this year Lee Dong-chae, chairman and biggest shareholder in Ecopro, was sentenced to two years in prison for violating South Korean capital market laws.

3. We’ve seen parabolic moves in stocks that aren’t pure-play tech names:

Posco Holdings (Korea, steel, not held) is one of Asia’s biggest steel producers, with 30,000 employees producing 32 million tons of steel every year.

The company has made some smart investments in green steel technology, and has ongoing investments in EV battery components.

A management update in July was material in driving Posco’s market cap from $24.9 billion to $42.5 billion in the month.

Similarly, exceptionally strong monthly gains (50% plus) were seen in some Taiwanese computer hardware makers, even though they have been reporting declining PC, laptop and server volumes this year.

Investors are hoping server orders from artificial intelligence (AI) businesses are about to follow — even though volumes and margins at this point are unclear.

4. High-quality, large-cap companies with proven track records and technologies were laggards in July

TSMC (Taiwan, tech hardware, held) is widely recognised as the world’s dominant producer of the high-performance semiconductors that are key to AI.

The stock fell 2.8% in July.

Samsung Electronics (Korea, tech hardware, held) is TSMC’s nearest challenger in high-end semiconductors, as well as a major producer of computer memory, including the HBM type used in AI servers.

The stock fell 0.4% in July.

Technological revolutions in AI and EV are changing the world, but equity markets will not price that opportunity with perfect efficiency.

We are concerned that some parts of the EM equity space look particularly inefficient right now.

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About Pendal Global Emerging Markets Opportunities Fund

James Syme, Paul Wimborne and Ada Chan are co-managers of Pendal’s Global Emerging Markets Opportunities Fund.

The fund aims to add value through a combination of country allocation and individual stock selection.

The country allocation process is based on analysis of a country’s economic growth, monetary policy, market liquidity, currency, governance/politics and equity market valuation.

The stock selection process focuses on buying quality growth stocks at attractive valuations.

Find out more about Pendal Global Emerging Markets Opportunities Fund here
 
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.

Contact a Pendal key account manager here

China faces slowing growth and weak consumer confidence. But there are opportunities for investors willing to take a closer look, argues PAUL WIMBORNE

• Economic stimulus unlikely 
• But China equities look good value
• Find out about Pendal Global Emerging Markets Opportunities fund

CHINA’S economic downturn is starting to create attractive opportunities for equity investors, though a mixed performance across the economy means a cautious approach is warranted, says Pendal’s Paul Wimborne.

Beijing’s policymakers are struggling with a mix of slowing growth, weak consumer confidence and rising youth unemployment, as the brief spark of activity after last year’s COVID lockdowns fizzles out.

Markets latched on to a dovish statement from last week’s politburo meeting that said the government planned to step up “countercyclical measures”.

But there are few real signs of significant stimulus, says Wimborne, co-manager of the Pendal Global Emerging Market Opportunities fund.

“There is a lack of confidence in China driving this weakness – so the question is how does the government assess and react to that?

Long-term focus

“We think the key priority for the Chinese government remains building long-term economic and financial system resilience and growth hasn’t yet fallen to the levels that would lead them to aggressively stimulate.

“We think they will continue to push through mini stimulus measures in certain areas where they would like to encourage growth — but we don’t think they’re at a point where we’ll get a big stimulus plan.”

Wimborne says Beijing’s focus on long term resilience means some of the stimulus measures the market is hoping for — like expanding credit availability for the property sector — are unlikely to eventuate.

“The key policy plank that has been in place over the last three years is to shrink the size of the property industry and consolidate around the better run companies with stronger balance sheets.

“We believe that is still a key policy plank for them and it’s very unlikely that they are going to want to shift away from that unless conditions get much worse.”

Direct stimulus for consumers — echoing the West’s policy measures during the pandemic — is also unlikely, says Wimborne.

“The risk of these policies, as we have seen in the West, is inflation. The government has stated that they do not want to move down that path. They don’t think handing out free money is a good way to manage an economy.”

Large-scale stimulus unlikely

The upshot for investors is that any stimulus is likely to be narrowly targeted and aligned with Beijing’s long-term policy outcomes.

“So, for example tax exemptions on electric vehicle sales – that is aligned with the direction they want to take the economy, reducing demand for oil and promoting the size and scale of the domestic electric vehicle manufacturing industry.

“But these are small scale — they help at the margin, but they’re not going to be a big stimulus.”

Value to be found

The implication for investors is not to get fooled by apparently attractive valuations but instead tread a careful path and be selective about investments.

“China’s equity market is very cheap,” says Wimborne.

“While economic growth is slower than people were anticipating at the start of the year, it’s not terrible and there are certain areas where growth is holding up relatively well.

“That means there are parts of the economy we are happy to get exposure to — and parts that we would like to avoid.

“Overall, it leads us to be slightly underweight China but there are key areas which we think show decent growth trends with cheap valuations that are interesting from an investment point of view.”

Wimborne says his preferred investments in China include premium domestic brands Tsingtao Brewery and Proya Cosmetics alongside companies exposed to the energy transition like natural gas distributor ENN Energy and solar panel glass maker Xinyi Solar.

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About Paul Wimborne and Pendal Global Emerging Markets Opportunities Fund

Paul Wimborne is a senior portfolio manager and co-manager of Pendal’s Global Emerging Markets Opportunities Fund with James Syme and Ada Chan.

The fund aims to add value through a combination of country allocation and individual stock selection.

The country allocation process is based on analysis of a country’s economic growth, monetary policy, market liquidity, currency, governance/politics and equity market valuation.

The stock selection process focuses on buying quality growth stocks at attractive valuations.

Find out more about Pendal Global Emerging Markets Opportunities Fund
 
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.

Contact a Pendal key account manager here. 

A pick-up in cyclical growth in Indonesia is creating opportunities for emerging market investors, argues Pendal’s PAUL WIMBORNE

• Indonesia set for growth
• Retailers, auto dealers and banks well-placed
• Find out about Pendal Global Emerging Markets Opportunities fund
• Join a live webinar with Pendal EM expert James Syme on May 16

INDONESIA has been attracting the attention of investors recently.

What’s driving the interest?

South-east Asia’s biggest economy is a large exporter of commodities like palm oil, coal and nickel — many of which are priced higher since Russia’s invasion of Ukraine.

The rising value of exports follows a period of reduced imports during the pandemic, leaving the Indonesian trade balance strongly in surplus.

“For us, that’s a sign that Indonesia can start to import more on the domestic side of its economy without causing imbalances,” says Wimborne, co-manager of Pendal Global Emerging Market Opportunities Fund.

“So, from a cyclical point of view, Indonesia’s economy looks very well set for above trend growth over the next few years.

“Indonesia is at that sweet spot in the cycle where the export side of its economy is doing well, the currency has the potential to go stronger and domestic demand — which has been subdued for 10 years — looks like it could pick up.”

Return to growth

A return to growth for Indonesia comes after a decade of below-trend growth — a hangover from a consumption binge fuelled by quantitative easing in the wake of the global financial crisis.

“Money was being pushed from the developed world to the emerging world. Like many other emerging markets, Indonesia started to suck in more and more imports, and it led to big imbalances in the economy,” says Wimborne.

“Trade deficits, current account deficits — this is always where the cyclical parts of emerging markets start to become a problem.”

As US and European regulators began to taper quantitative easing in 2013, money started to reverse out of emerging markets and those imbalances became unsustainable, he says.

“At the same time, commodity prices started to fall so the export side of Indonesia’s economy also fell, which exacerbated these imbalances.”

Now, the cycle is turning in Indonesia’s favour with China’s re-opening set to keep a floor under commodity prices.

“Even if commodities fell a bit from here, Indonesia’s trade surplus is at record levels so they would still be in a very good position.”

Boost from manufacturing and labour reform

Wimborne says Indonesia is also placed to benefit from the government’s push to encourage more manufacturing and reform labour markets.

“Indonesia has made some very interesting policy changes which are helping to drive the value add component of its exports.

“The best example is nickel, where a decade ago they implemented a partial ban on selling raw nickel ore to encourage investment in processing plants.

“This encouraged foreign, direct investment into the country and enabled them to capture more of the value add of what they are exporting.”

The political background means the outcome of next year’s election will be important to the country’s economic prospects.

“At the moment they have a big tent coalition,” says Wimborne. “The losing candidate from the last election is part of the cabinet and is one the leading candidates to win the next election.

“We would expect that big tent coalition to hold together and for politics to be relatively stable despite the election year.”

Wimborne’s preferred exposure to Indonesia is through companies that benefit from rising domestic demand, like banks, retailers and auto dealers.

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About Paul Wimborne and Pendal Global Emerging Markets Opportunities Fund

Paul Wimborne is a senior portfolio manager and co-manager of Pendal’s Global Emerging Markets Opportunities Fund with James Syme and Ada Chan.

The fund aims to add value through a combination of country allocation and individual stock selection.

The country allocation process is based on analysis of a country’s economic growth, monetary policy, market liquidity, currency, governance/politics and equity market valuation.

The stock selection process focuses on buying quality growth stocks at attractive valuations.

Find out more about Pendal Global Emerging Markets Opportunities Fund
 
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.

Contact a Pendal key account manager here.