Important Updates:

Pendal Sustainable International Share Fund (APIR: BTA0568AU, ARSN 612 665 219)

Effective 22 May 2025, the buy-sell spread for the Pendal Sustainable International Share Fund (the Fund) will increase as set out in the table below:

Table 1: Old and New Buy-Sell Spreads

Fund Name	Old (%)		New (%)
	Buy	Sell	Buy	Sell
Pendal Sustainable International Share Fund	0.05%	0.05%	0.12%	0.08%

The buy-sell spread is an additional cost to you and is generally incurred whenever you invest in or withdraw from a Fund. The buy-sell spread is retained by the Fund (it is not a fee paid to us) and represents a contribution to the transaction costs incurred by the Fund such as brokerage and stamp duty, when the Fund is purchasing and selling assets.

Importantly, the buy-sell spread helps to ensure different unit holders are being treated fairly by attributing the costs of trading securities to those unit holders who are buying and selling units in the Fund.

The Fund’s buy-sell spread will increase to reflect an increase in the Fund’s brokerage costs and local market jurisdiction transaction taxes.

As transaction costs may change depending on various factors such as market conditions and brokerage costs, buy-sell spreads may also change without prior notice. You should therefore review current buy-sell spread information before making a decision to invest or withdraw from a Fund.

Please refer to our website www.pendalgroup.com, click ‘Products’, select the Fund and click on ‘View fund information’ for the latest buy-sell spread for the Fund.

Although evolving tariff policies threaten a trade downturn, investor uncertainty about US economic policies is a positive for emerging economies, argues Pendal’s emerging markets team

• Find out about Pendal Global Emerging Markets Opportunities fund

VOLATILITY in global financial markets increased further in April.

Notably this included US financial markets, with a general pattern of a weaker US dollar and rising bond yields.

Some analysts have described this as a “classic emerging market crisis”.

As veterans of actual emerging crises dating back to 1994, we consider that view to be wildly overstated.

In terms of actual market moves, US sovereign 10-year bond yields were highly volatile in March and April, but ended flat at 4.2%. US 30-year yields rose from 4.5% to 4.7%.

It’s particularly unusual that this came with a weaker US dollar.

The US Dollar Index (or DXY – a measure of the value of the USD relative to six other major currencies) fell 7.6% in the period while the broad trade-weighted index fell 3.9%.

There have only been four other occasions in the past 30 years when the US dollar fell by more than 1.5 per cent at the same time 30-year yields rose more than 10 basis points.

Those were during the Global Financial Crisis in February 2009, the European sovereign debt crisis of October 2011, the May 2013 taper tantrum and the first election victory of President Trump in November 2016.

Yields on US 30-year Treasuries rose in the period, but the increased interest rate demanded by investors is not because of inflationary expectations as inflation-protected bond yields also ended the period higher.

There is a concept that, “when the US sneezes, emerging markets catch a cold”.

Given this volatility and weakness in core US financial markets, how did major emerging markets fare?

In March and April, the currencies of almost all emerging markets strengthened against the US dollar (the four Gulf states with US dollar pegged currencies have been excluded from this analysis, as has Greece which uses the Euro).

The strongest was the Hungarian Forint, up 8.6%, while the weakest was the Indonesian Rupiah, down by a marginal amount.

In addition, the bond yields (looking at local currency bonds with a maturity closest to ten years) of the majority of major emerging markets declined.

For the very biggest emerging markets, the combination of moves was particularly positive.

Brazil saw the currency gain 3.7% and ten-year bond yields decline 1.2 percentage points; in India those figures were +3.6% and -0.4pp.

Major exporters, despite the prospect of US tariffs, generally fared well.

Currencies strengthened and bond yields declined in Mexico (+4.8%, -0.1pp), South Korea (+2.4%, -0.1pp) and Taiwan (+2.9%, -0.1pp). China (currency marginally weaker, bond yields marginally higher) was the only significant exception.

We feel the best explanation for this seemingly confusing set of market signals is that some global investors are relying less on the US dollar and US sovereign debt as their risk-free benchmarks. While the US dollar was down 7.6% against major currencies, it was down 15.1% against gold.

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

Contact a Pendal key account manager here

Here are the main factors driving the ASX this week, according to Pendal’s head of equities CRISPIN MURRAY. Reported by portfolio specialist Chris Adams

• Find out about Pendal Focus Australian Share fund

THE walk-back of US-China tariffs has reinforced a faster-than-expected reversal from Liberation Day’s shock announcement and underpinned the rebound towards equity market highs.

The S&P 500 posted a 5.3% gain last week, while the NASDAQ gained 7.2% and the S&P/ASX 300 rose 1.5%.

General tariffs on China’s imports have been reduced to 30% for 90 days. This is better than the market was hoping for.

It also removes the effective embargo on Chinese imports – and has probably come soon enough to prevent it from having a major impact on economic growth.

Effective tariffs on China are still around 40% – and at a 14% blended rate for aggregate imports to the US – so we will see inflationary pressures build and slowing growth.

However, the tail risk of recession has fallen markedly. The consensus among economists has the chance of recession at around 35%, down from more than 50% in early April.

The removal of this tail risk, combined with the recent strong US quarterly earnings and a weaker US dollar and oil price, are all supportive for equities.

But this has been a significant bounce and some consolidation is likely, given there is still uncertainty over policy and the economy.

Détente on tariffs has also affected bond yields, with the forward curve removing one implied rate cut in the US; expectations are now for two cuts by the end of 2025.

This, in combination with what looks to be a stimulatory US budget bill, has seen US 10-year Treasury yields rise 29 basis points (bps) to 4.41% in May.

In Australia, employment data suggests the economy is in good shape.

Employment growth was stronger than expected (+89k jobs in April versus consensus expectations of +20k), while the unemployment rate remains at 4.1% as a result of growth in participation of 0.3% to 67.1%.

Hours worked are more subdued at 1.1% growth year-on-year.

The RBA is still expected to cut this week, which will underpin growth.

The results and outlook for tech companies Life360 (360) and Xero (XRO) were positive and we expect continued rotation from defensives into growth and deeper cyclical names as the outlook for world growth becomes more secure.

US macro and policy

In the space of four weeks, we have moved from probable recession in the US to a likely scenario of moderating, but positive, growth.

The market had feared a downward spiral as the direct effect of tariffs on consumer spending would be compounded by a significant fall in confidence, lower investment, supply chain disruptions, tighter financial conditions and a Federal Reserve unable to cut rates due to inflation.

We have subsequently seen the walk-back in tariffs, while the US economy is proving more resilient than expected, corporate earnings were stronger, oil prices were lower, and financial conditions have eased as equities and credit rallied and the US dollar fell.

This virtuous circle has taken the market within 2% of its February high.

We will probably never know if this was chaotic “policy-on-the-run” or some grand plan, but there are two take-outs we would emphasise:

1. The Trump administration has shown they are not prepared to tank the US economy in the pursuit of their long-term economic agenda. The speed of initial trade agreements has surprised the market. We note that Treasury Secretary Scott Bessent recalled in one interview that one of the first questions President Trump asked him was how they can change the economic order without triggering a recession. When faced with that risk, they clearly looked to adjust policy.
2. The US economy has more momentum than the market appreciated. Growth has been more resilient despite sentiment indicators being weak and corporate earnings have surprised on the upside, which underpins jobs and investment.

In our view, the market is likely to consolidate from here.

Despite the suspension of reciprocal tariffs, the overall tariff level is rising from 3% to around 14% – and this looks set to be a permanent feature, as they remain an important pillar in the strategy to reduce US economic reliance on other countries.

During this period of tariff suspension we will see the work done on the other pillars of this policy, which are deregulation, tax incentives and lower energy costs.

These are to incentivise and enable investment to help balance the negative effects of tariffs.

There are still uncertainties which can check the market’s continued immediate rise:

• A blended tariff rate of 14% now is materially higher than the 3% at the start of the year. While this is a more manageable level, it will lead to higher prices and eat into consumer spending power.
• We still are not clear whether the fall in sentiment indicators will translate into real economic data.
• We do not know if the US can reach a constructive deal with Europe.
• Finally, the US equity market sits on relatively high multiple of 22x price/next-12-month earnings, with less transparency on earnings growth and the market consensus still around 11% EPS growth in CY26.

It is also important to watch the bond market, which may present another risk if yields rise too high. They have continued to back up this month, though they are still manageable at around 4.5%.

The US fiscal position is an important factor here – Moody’s downgrade to the US credit rating reflects its longer-term concern here.

US – China trade détente

Monday saw the US and China walk back from the trade brink with a 90-day reduction in general tariffs on China from 145% to 30% (10% reciprocal tariffs, plus 20% related to fentanyl). This is a better outcome than most expected.

China agreed to a cut from 125% to a 10% on US imports.

If nothing is agreed by the end of the 90 days, then both sides will increase tariffs by 24% i.e. tariffs revert to 54% on China and 34% on US.

These tariffs do stack on the original 2018 Section 301 tariffs and the fentanyl one stacks on top of Sectoral 232 tariffs. That means the weighted average tariff on China is estimated to be around 40% for the next 90 days, which compares to 11% prior to the escalation.

The market is not expecting a deal to be done by the early August deadline.

However, if negotiations are progressing then the suspension could be extended, with the UN General Assembly meeting in New York in late September providing an opportunity for Presidents Trump and Xi to meet, with a deal possibly formalised around mid-October.

The other components of negotiations include progress on fentanyl and Tik Tok ownership.

The ultimate outcome is now expected to be tariffs on Chinese imports around the 34% level which, adding on sector-specific tariffs, rises to the low-40% range.

This is, however, all conjecture – and the market did not expect the scale of walk-back in tariffs so soon. The direction of risk, in our view, is probably slightly lower tariffs than implied by the market.

Implications of the deal

Both sides were motivated to land a deal. Previous tariff settings were effectively an embargo on trade, with expectations that Chinese exports to US would fall more than 65%.

The freight industry has been warning that US shelves would begin to empty out of key products within weeks as a result – and it was feared that US GDP would see a hit to growth expectations between 0.5% to 1.0%.

Beijing was also facing an 2.5% hit to China’s GDP and there were 16 million jobs directly affected in their export sector.

The suspension buys both sides time to prepare, should there be no agreement in future.

The US can work on its tax legislation – which will be looking to put more money into the hands of consumers to offset the effect of tariffs – while China can work on other measures to support its economy.

The consequences of this deal are:

1. Better US growth expectations. Estimates have increased around 0.5% for GDP growth in 2025.
2. Lower inflation in the US.
3. Chinese growth net revisions for 2025 in the range of 0.5% to 1% – this is reduced by less need for stimulus.
4. The market has removed 1-2 cuts from the forward curve in the US. There has also been one cut taken out from the ECB’s forward curve
5. A bounce in the US dollar, though this has been relatively limited.

Clearly, removing the tail risk of a major trade breakdown – combined with a lower risk of recession – has been a catalyst for US equities to catch-up with the rally we have seen in other markets.

US economic growth signals

Some demand was pulled forward into Q1 to front-run tariffs. This supported economic data but is now expected to unwind. Along with the weaker sentiment signals of recent weeks, it is expected to lead to a few months of softer data.

We began to see the first signs of this in retail sales, which were up 0.1% month-on-month in April, after rising 1.7% in March.

The control group measure – which excludes food, gasoline, autos and building materials and feeds into GDP – was down 0.2% month-on-month, possibly reflecting some of the sentiment issues rolling through. 

The Food service sales component remained firm. This is an important discretionary measure and indicates spending is still holding up OK.

Homebuilder confidence was weaker and looks to be a soft part of the economy. Weaker sentiment may weigh more here, as uncertainty tends to lead to deferral of major decisions and mortgage rates remain elevated.

However, the sector is already subdued. Housing starts are at the historically muted rate of 1.36m annualised for April and building permits are declining about 5% month-on-month.

So, while this sector remains a headwind, it is unlikely to be an additional material one.

Sentiment indicators remain poor, with the Michigan Consumer Sentiment Index falling to 50.8 in May from 52.2 in April, below consensus and forecasts of 53.4.

The survey is distorted by the Expectations component – which sits well below the current conditions level.

The Inflation expectations component is also continuing to rise.

There is a question mark over the reliability of the Michigan Consumer Sentiment Index – as it has been poor for some time and not translated into real data. There is also a huge political divergence with sentiment among Democrat voters at 22.5 versus Republican voters at 90.

So, we are not placing too much weight on this indicator.

Weekly initial jobless claims held steady at 229k.

The upshot is that data is softer at the margin, but suggests an economy which is slowing but still holding up

We note that the Atlanta Fed GDPNow indicator – which tanked in Q1 and was one of the early indicators that suggested growth was weakening – is looking much better in Q2 so far, suggesting growth near 2.5% quarter-on-quarter.

Inflation signals

April’s US consumer price index (CPI) was slightly lower than expected and is giving us an insight into inflation trends before the impact of tariffs.

• Overall, the trend is solid: Core CPI was +0.24% month-on-month (MOM) and +2.8% year-on-year (YOY).
• Core goods rose +0.1% MOM after a decline in March, though excluding used cars there has been a tick-up on a 3-month basis. This may indicate that, broadly speaking, companies are in a position to pass through the effect of tariffs – some, such as Walmart, are indicating this is what they will do.
• Core services (excluding rents) rose 0.3% (MOM) but is still decelerating on a three-month basis, possibly reflecting a slowing in the economy and helping to absorb the inflationary effects of tariffs.

April’s Core Producer Price Index (PPI) at -0.4% was below expectations, driven by a 1.6% fall in trade services, which reflects distributor’s gross margins.

At face value, this may indicate tariffs are being absorbed into gross margin. However, this data is prone to significant revisions and it may be the tariff increases surprised distributors, who had not adjusted prices at the time the data was collected.

Walmart’s CFO said that consumers will start to see price increases from the end of May. We will get updates from other retailers this week. 

US budget update

The latest indicative proposal from the House is to bring forward a series of tax cuts which will be financed in later years i.e. a near term fiscal stimulus starting in CY26.

This is at a time of full employment and inflation still above target range.

While good for growth and corporate earnings, it could be a catalyst for bonds yields to rise further and make it more difficult for the Fed to cut rates.

We note Moody’s downgrade to the US credit rating, which highlights the lack of action on the structural fiscal deficits.

Markets

One important dynamic of the market recovery has been the better performance of the Mag 7.

This is relevant for Australia as it tends to correlate with the performance of our growth stocks versus defensives.

Mag 7 earnings have surprised to the upside, which has led to them reversing part of the underperformance they have seen earlier this year.

This is an important support to the overall market and underpins the rotation we have seen to tech in the ASX.

The other dynamic to note is that sentiment is far more subdued than it was when the market hit its highs at the start of the year. This is important as it means the market is less vulnerable to a deterioration in news flow.

The S&P/ASX 300 is now 14% off its 7 April lows, up 3.7% in 2025 and within 2.5% of its February highs.

The 1.5% gain last week was driven by tariff détente, as well as supportive results from tech stocks Life 360 and Xero.

The index move higher was held back by a rotation away from defensives and gold stocks.

Consumer Staples fell 3.5%, Utilities 2.5% and REITs 0.5%.

The rise was led by Tech (up 5.3%) and bombed-out deep-cyclicals, notably some of the more leveraged resource stocks – for example, Mineral Resources (MIN) rose 25.4% for the week.

Given i) supportive domestic economic backdrop, ii) the reduction of offshore tail risk (notably Chinese growth and commodity demand), iii) the likely cut in domestic rates this week, iv) stable government and, v) loose fiscal policy, the market is well-placed to test the prior high and consolidate there, in our view, while we wait to see how the various global trade negotiations play out and the degree of slowing in the US.

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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

While it’s all systems go for a rate cut next week, caution will be the RBA’s message, writes Pendal’s head of government bond strategies TIM HEXT

• Browse Pendal’s fixed interest funds

THE final pieces of the economic puzzle before the Reserve Bank’s rate decision next Tuesday have now been released.

The data paints a mixed picture, among the wider chaos of April.

The NAB Business Survey for April, our favourite trove of leading indicators, showed an economy slightly easing.

Business conditions remain below average, driven largely by falling profitability. Manufacturing and retail remain soft, with Victoria still the weakest.

Of more interest was capacity utilisation – it is finally back at long run averages, the final post-COVID indicator to resume normal transmission.

Here is the graph, courtesy of NAB.

The second piece of data was the Wage Price Indicator (WPI) for the March quarter.

This came in at 0.9%, slightly higher than expected as several higher public sector agreements hit. After the surprisingly low 0.7% Q4 number, it is fair to characterise wages as growing around 3.2-3.4% annually, consistent with RBA forecasts.

This is near an ideal outcome for the central bank, as slightly positive real wage growth should support consumer spending without impacting inflation.

The annual Minimum Wage decision will be handed down by the Fair Work Commission in early June and should see a similar outcome.

Finally, we got the April employment numbers today.

As always, volatility was high – with a large 89,000 job growth, but no change to the unemployment rate as participation also shot up.

No great explanations were forthcoming from the ABS, where I imagine corralling 26,000 people to fill in their survey each month must be the least wanted job among the statisticians.

When the RBA board sits down on Monday and Tuesday next week, they are highly likely to land on a 0.25% rate cut, as the market now prices.

Relative calm from the global picture in May has ruled out a larger cut, while the well-behaved inflation numbers make no change a highly unlikely call.

The RBA is in a good position right now.

A quarterly rate change cycle, post-quarterly inflation numbers, seems a cautious and easy path as inflation settles down in the 2-3% band.

We still look for cuts next week and in August and November taking cash rates to 3.35% (or somewhere near ‘neutral’). Markets should still lean in for a little bit more given the global picture.

So, what is the market pricing now?

The chart below shows a cash rate near 3.3% by year-end, up from an expected 2.9% only a few weeks ago.

As a result, we are once again building some overweight duration positions.

The market is not overly cheap, and exuberance may see it get a bit cheaper. However, for the first time since March, pricing allows for a more sensible risk/reward overweight duration position based off Australian fundamentals.

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About Tim Hext and Pendal’s Income & Fixed Interest boutique

Tim Hext is a Pendal portfolio manager and head of government bond strategies in our Income and Fixed Interest team.

Tim has extensive experience in banking, financial markets and funding including senior positions with NSW Treasury Corporation (TCorp), Westpac Treasury, Commonwealth Bank of Australia, Deutsche Bank, Bain & Co and Swiss Bank Corporation.

Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.

Find out more about Pendal’s fixed interest strategies here

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About Pendal

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

In 2023, Pendal became part of Perpetual Limited (ASX:PPT), bringing together two of Australia’s most respected active asset management brands to create a global leader in multi-boutique asset management with autonomous, world-class investment capabilities and a growing leadership position in ESG.

Contact a Pendal key account manager

Meet the manager video series | ASX small caps set to outperform | China, the US, and the value of uncertainty

We have updated and reissued the Product Disclosure Statements (PDS) for the following Pendal funds effective on and from Thursday, 15 May 2025: 

• Pendal Active Balanced Fund
• Pendal Active Conservative Fund
• Pendal Active Growth Fund
• Pendal Active High Growth Fund
• Pendal Active Moderate Fund

(the Funds).

The following is a summary of the key changes reflected in the PDS for each Fund.

Updates to significant risks disclosure

Each Fund’s investment strategy involves specific risks.

We have updated the significant risks disclosure applicable to each Fund to ensure that our disclosure continues to align with the nature and risk profile of each Fund and the current economic and operating environment.

Updates to ongoing annual fees and costs disclosure

The estimated ongoing annual fees and costs for each Fund have been updated to reflect financial year 2024 fees and costs. These include changes to estimated management costs and estimated transaction costs.

We now also disclose the maximum management fee we are entitled to charge under each Fund’s constitution.

Changes to Fund details

We have updated that regular communications for changes will be discontinued except for when there are material changes where we will continue to provide prior notice. Material change notices will continue to be available online in the Important Updates section.

Updates to restrictions on withdrawals

We have updated the disclosure on restrictions on withdrawals to align closer to what is in each Fund’s constitution.

Additional information on how to apply for direct investors

We have provided additional information for non-advised retail investors (retail investors without a financial adviser) investing directly in a Fund who may also be required to complete a series of questions as part of their online Application, to assist us in understanding whether they are likely to be within the target market for a Fund. 

Updates to our complaints handling process

We have provided additional details about our complaints handling process and the Australian Financial Complaints Authority.

This document has been prepared by Pendal Fund Services Limited (Pendal) ABN 13 161 249 332, AFSL No: 431426 and the information is current as at the date of this document. Pendal is the responsible entity and issuer of units in the funds listed in this document (Funds). A Product Disclosure Statement (PDS) is available for each of the Funds and can be obtained by calling us or visiting www.pendalgroup.com. You should obtain and consider the PDS before deciding whether to acquire, continue to hold or dispose of units in a Fund. An investment in any of the Funds is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. 

This information been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. 

This information is for general information only and should not be considered as a comprehensive statement on any of the matters described and should not be relied upon as such. Neither Pendal nor any company in the Perpetual Group (Perpetual Limited ABN 86 000 431 827 and its subsidiaries) gives any warranty for the accuracy, reliability or completeness of the information in this document or otherwise endorses or accepts responsibility for this information. Except where contrary to law, Pendal intends by this notice to exclude all liability for this material. 

Policy effectiveness doesn’t always come wrapped in transparency or even democracy, observes Pendal’s head of income strategies AMY XIE PATRICK

• Less policy guidance can be a good thing
• Focus on getting it right rather than always being right
• Find out about Amy Xie Patrick’s Pendal Monthly Income Plus fund

INVESTORS were witness to a tale of two central banks in early May.

The US Federal Reserve left policy unchanged, resisting calls for rate cuts despite growing political pressure.

Meanwhile, the People’s Bank of China (PBoC) delivered another dose of stimulus – cutting policy and reserve requirement rates and co-ordinating with regulators to prop up equity markets.

One central bank faced market criticism over its non-committal guidance.

The other moved swiftly and silently, without needing to justify its decision.

This divergence is not just a curiosity for anyone managing money through this phase of the economic cycle.

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.

Trump, Powell, and the art of political pressure

The Fed’s decision to hold rates came against a backdrop of renewed presidential frustration.

President Trump has been ramping up criticism of Fed chair Jerome Powell, calling him “Mr Too Late”, threatening to fire him and pushing hard for rate cuts.

This isn’t new behaviour from Trump, of course. But it’s gaining urgency for market participants as US sentiment sours and the S&P 500 appears more fragile.

Despite this, the Fed held its line.

I, for one, am not losing sleep over questions of the Fed’s independence. It’s too soon to be doubting America’s institutional integrity.

Moreover, Powell has shown the discipline to tune out political noise and stick to his mandate. Rather than guess which of inflation or growth will be the larger problem, he has chosen to “wait and see”.

These are very frustrating words for the market to hear.

The real lesson here is not about Powell. It’s about the limits of anyone’s ability to forecast far into the future and the risks we create when central banks try too hard to meet markets where they are.

China’s policy co-ordination

Unlike the Fed, the PBoC rarely emphasises the risks to inflation or employment.

In fact, it has never felt the need to publicly justify its policy decision.

The combined effect of the PBoC’s policy decisions will inject more than RMB 2 trillion (roughly $US280 billion) into the Chinese banking system.

Alongside market stabilisation and support measures announced by financial regulators, this will provide a supportive backdrop for domestic business activity.

Also unlike the Fed, the PBoC has never been independent in the Western sense. It functions as an arm of the state.

Nevertheless, this lack of independence hasn’t undermined the credibility of China’s bond market.

Quite the opposite. Since the pandemic, Chinese government bonds have behaved more consistently as a defensive asset than US Treasuries have, offering shelter during periods of global risk aversion and domestic slowdown.

I’m not suggesting we abandon democracy for technocracy.

I certainly would not advocate the removal of central bank independence in the West.

But from a markets perspective there’s something to be said for the capacity to act decisively, without being bound by the optics of forward guidance or the paralysis of public scrutiny.

This recent demonstration of China’s policy machine to be able to act quietly, decisively and in a coordinated fashion must be a source of envy for Mr Trump.

Borrowing from the East?

In some ways, the current US posture feels like a clumsy imitation of China’s long-practised state capitalism.

Trump’s tariffs are like a type of self-harm aimed at reorganising America’s industrial structure – much like Beijing’s Three Red Lines policy targeted the painful default and deleveraging of the Chinese property sector.

Trump’s tariffs are asking US consumers to share the pain while US manufacturers collect themselves under the new order – much like Beijing asked Chinese households to put up with low returns on their savings so cheap funding could be channelled towards industry.

The difference is that no votes are needed for President Xi to stay in power, whereas President Trump needs ongoing support.

The latest US manufacturing surveys already see much handwringing from producers over how the tariff pain could be shared through their supply chains.

The latest US consumer surveys point to sentiment falling through the floor.

While sentiment doesn’t always translate into economic outcomes, it sure provides fodder for those lobbying against the policy chaos in Washington.

Even though Trump claims he’s “not even watching the stock market”, policy sensitivity to the performance of equity markets likely remains far higher for his administration than it has ever been for China.

For the latter, it has also been thanks to a less-developed financial system and lower ownership of local share markets by private households.

The efficacy for Trump to borrow pages out of China’s policy playbook will always be limited by the sharp dichotomy of the two nations’ political constructs.

It is hard to argue that short-term policy efficacy is worth the cost of fundamental democracy and liberty.

Is guidance over-rated?

Perhaps the most contrarian, yet valuable takeaway is that less policy guidance may be a good thing.

For years, central banks have fallen over themselves to signal intent, reassure markets, and smooth volatility.

Pendal’s internal analysis of the Fed is that in the near term, it tries very hard not to surprise the market expectations for each policy meeting.

However, excessive clarity creates a false sense of security.

In Australia, we only need rewind to the RBA’s steadfast guidance through most of 2021 that there would be no need to lift interest rates until 2024.

By the start of 2024 the central bank had in fact raised interest rates by 4.25 percentage points.

Whenever markets have believed that a central bank’s guidance has removed uncertainty –  or at least truncated the left tail of return distributions – the behaviour of market participants becomes more risk-loving.

In the lead-up to the Great Financial Crisis that looked like the private sector and banking system taking on too much leverage.

Perhaps a little more policy uncertainty and a little less conviction on policy guidance is saving us from bigger troubles down the road – however unsatisfactory that may be for market participants today.

How Pendal’s fixed-interest team navigates uncertainty

It’s of little concern to us whether central banks give us clear guidance with conviction or simply tell us they’re “data dependent”.

Guidance that comes with strong conviction is often priced in by bond markets ahead of time if justified by the economic fundamentals – and creates volatility and trading opportunities if not.

Bonds and equities have both demonstrated that the fundamentals always matter, even though dislocations can occur.

By keeping ourselves focused on the fundamentals we are able to position our portfolios for the greatest likelihood of success.

By avoiding the hard task of forecasting far into the future, we free ourselves from unhelpful narratives 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.

Maybe it’s time to stop giving RBA governor Michele Bullock a hard time for wanting to be guided by the data.

 

The Pendal Asian Share Fund (Fund) will terminate on Monday, 18 August 2025.

Why is the Fund terminating?

We regularly review our product offerings and investment capabilities to ensure that our business continues to maintain a product suite that remains viable and relevant to our investor demands.

After careful consideration, we have determined that terminating the Fund is in the best interests of investors.

The Fund’s small size means that it has high running costs and cannot be managed in a cost efficient way.

We also consider that the Fund has little prospect of significant growth in funds under management in the foreseeable future. If the Fund were to continue, the Fund’s size would result in higher management costs for investors, which would reduce their investment returns.

How this affects you?

We will terminate the Fund on Monday, 18 August 2025.

Any applications received after 2:00pm (Sydney time) on Tuesday, 13 May 2025 will not be accepted. There will be no reinvestment of distributions from 2:00pm (Sydney time) on Tuesday, 13 May 2025.

We will continue to accept withdrawal requests up to 2:00pm (Sydney time) on Friday, 15 August 2025.

As soon as practicable after the Fund is terminated on Monday, 18 August 2025, we will begin winding up the Fund. The assets remaining in the Fund will be realised and the proceeds distributed to all investors in proportion to their unit holding.

What does this mean for you?

The cash proceeds from this termination will be paid directly to your nominated bank account on file on or around the week commencing Monday, 25 August 2025 or shortly thereafter.

Any distributions paid from 2:00pm (Sydney time) on Tuesday, 13 May 2025 will be paid as cash into your nominated bank account on file.

Details of any distributions paid to you during the financial years ending 30 June 2025 and 30 June 2026 will be included in your 2025 and 2026 AMIT Member Annual (AMMA) statements, respectively. These statements will set out the components of the income that have been attributed to you following the end of the financial years ending 30 June 2025 and 30 June 2026.

Questions?  

If you have any questions, please contact our Investor Relations Team during business hours on 1300 346 821.

Here are the main factors driving the ASX this week, according to portfolio manager RAJINDER SINGH. Reported by portfolio specialist Chris Adams

• Find out about Crispin Murray’s Pendal Focus Australian Share Fund

WHILE hard data continues pointing to a solid US economy, soft data and sentiment indicators remain weak.

The market is grappling with how much damage has been done to the US and global economies and, therefore, whether the recent market rally has been just another “buy the dip” opportunity (as in recent years) or if it is a genuine bear market rally.

Global equity markets took a break in their rally from April lows last week, with the S&P 500 down 0.5% despite a decent US earnings season.

Treasury yields drifted higher as the market watched for trade deals to ease previous macro concerns.

The Fed is also uncertain about the tariff impact, so made no change in last week’s FOMC meeting. It is maintaining its “wait and see” approach while the outlook for inflation and growth becomes clearer.

Other central banks – such as the Bank of England and People’s Bank of China – continued cutting rates in response to current and forecast domestic weakness.

Both gold and oil bounced around intra-week but ended up 3.2% and 4.3% respectively.

The S&P/ASX 300 was up 0.1%, though this disguised some significant moves at the stock and sector levels.

Banks (-2.2%) – with three of the Big Four reporting – were soft, while the Small Ordinaries (+3.5%), Technology (+2.1%), Utilities (+2.6%) and REITS (+1.3%) performed well.

US macro and policy

The ISM Services Index recovered to 51.6 in April, from 50.8 in March.

This was above the consensus of 50.2 and the recovery in the headline ISM Services Index provides some re-assurance that the service component of economy is so far holding up in the face of the tariff shock.

The new orders, employment, and supplier deliveries components all bounced, also unwinding at least some of their significant declines in March.

Initial jobless claims fell to 228K in the week ending 3 May (from 241K), which was in line with consensus.

Continuing claims fell to 1,879K in the week ending 26 April (from 1,908K), which was marginally below the consensus of 1,895K.

We note the impact of tariff uncertainty is starting to appear in some pockets – for example, Michigan initial jobless claims spiked, probably due to layoffs in the auto industry.

The US Census Bureau and Bureau of Economic Analysis revealed that the March trade deficit soared to a record $US140.5bn as consumers and businesses tried to get ahead of President Trump’s latest tariffs.

US exports for goods and services totalled $US278.5 billion (up $500 million), while imports climbed to nearly $US419 billion (up $US17.8 billion). This has roughly doubled, year-on-year.

It is important to note that the decomposition of imports shows that the surge was concentrated in only three areas: Precious metals/Gold, Pharmaceuticals and Computing/IT equipment.

When looking at broader business inventory levels, it seems clear there has been no stockpiling pre-tariff commencement, which may mean that businesses are still exposed to any tariff impacts.

We also saw the arrival of the first shipments of fully tariffed goods arriving at US ports from China.

Some reports have China-US shipping lanes seeing a 30%-50% volume drop in April, though new shipments from China to the US have risen in the past few days.

Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer met with Chinese Vice Premier He Lifeng in Switzerland over the weekend. President Trump said that if talks go well, he could consider lowering the 145% tariff he has imposed on many Chinese goods.

FOMC

As expected, the FOMC unanimously decided to keep rates unchanged.

It sees risks as evenly balanced and wants to wait for more information before reducing the funds rate again.

In recognition of the new tariff policy, the statement noted that “the risks of higher unemployment and higher inflation have risen”.

The Committee also looked through the drop in Q1 GDP and concluded that “economic activity has continued to expand at a solid pace”, while labour market conditions remain “solid” and inflation remains “somewhat elevated”.

Chairman Powell stated, “for the time being, we are well-positioned to wait for greater clarity before considering any adjustments to our policy stance” and “we think we can be patient”.

Fed-watchers believe the desire to wait for more information suggests that policy is much more likely to be eased in July than June, with the May and June CPI reports to be released in the interim.

This also allows the FOMC to see if there are additional reciprocal tariffs on 9 July, when the 90-day delay will expire.

The market is pricing a 70% chance of a rate cut by July and a two-to-three cuts by the end of 2025, which is aligned with investor surveys.

Comments by New York Fed president John Williams flagged the possibility that the Fed could remain in wait-and-see mode even beyond July/September if the data does not clarify the outlook and balance of risks sufficiently by then.

“Over the next few quarters, we’ll definitely get increasing information about what’s going on in the economy. But again, we’ll have to wait and see what we learn from that,” he said.

He emphasised that the Fed cannot act pre-emptively because while unemployment and inflation will likely both move higher, the mix, time horizon and correct policy response remains unknown.

UK policy and macro

The Bank of England (BoE) cut its main interest rate by 0.25 percentage points to 4.25 per cent on Thursday, despite an unexpected and unusual three-way split among policymakers.

The BoE’s Monetary Policy Committee voted 5-4 in favour of the decision to cut borrowing costs by a quarter point. Of the four dissenters, two members of the Committee voted for a bigger half-point cut while two others wanted to keep rates on hold.

The rate decision comes as the US and UK announced an agreement to reduce some tariffs, in a limited number of areas, while maintaining the base 10% tariff.

China macro and policy

In its first substantive monetary response to US tariffs, the People’s Bank of China (PBOC) cut seven-day reverse repurchase rates by 10 basis points to 1.4% and also lowered the reserve requirement ratio, which determines the amount of cash banks must hold in reserves, by 50 basis points.

It is estimated this would unlock 1 trillion yuan (US$138.5 billion) of additional liquidity for the market.

Officials also announced additional measures including a re-lending tool to finance several key sectors, including technology and real estate, and reduced the mortgage rates on five-year loans for first-time homebuyers to 2.60% from 2.85%.

The broad stimulus announcements showed that officials are acting with increased urgency to bolster the economy, though some analysts believe it may have limited impact on boosting domestic confidence and credit demand levels.

Oil/LNG

OPEC+ agreed to increase output by 411,000 barrels a day next month, following a similar increase last month.

The move is seen as a strategy to punish over-producing members, particularly Kazakhstan, and to lower oil prices.

The decision sent crude prices falling, though they recovered later in the week.

The EU also set a 2027 deadline to end any remaining gas contracts that are currently being fulfilled by Russia. Russia is still supplying 19% of EU gas needs.

Markets

The nine-session “winning streak” in the S&P 500 that came to an end last Monday was the longest in more than 20 years

From a technical perspective the S&P 500 is getting close to 200-day moving average levels, which may cap any further rise in the short term

Sentiment is mixed. There are some very supportive indicators – such as bull/bear ratios – while others such as the 10-day put/call ration and equity ETF flows are less so.

Crypto funds have had best inflow in three months while Tech fund flows continue to be weak

Credit markets are a good indicator if anything in the economy or markets are showing signs of serious distress.

In this vein, US credit spreads continue to fall from their spike from a month ago. International credit spreads are up from the beginning of April, but are not ringing any alarm bells.

Australian equities

Last week saw the Macquarie Conference which is a quasi “3rd quarter” reporting season. With companies across numerous sectors updating the market, it typically presents a good read on conditions – but especially so in a period of heightened macro uncertainly.

Companies presenting at the conference experienced an average outperformance of +1.4% on their presentation day.

Companies in Energy and Tech were the strongest with 2.3% and 1.9% average relative outperformance in the day. Utilities (-0.2%) was the only underperformer.

While the Australian equity market was flat for the week, there was significant variation within the various components.

Poor performance in the banks, dragged down the top 20 while the Small Ords and Resources had a better week.

 

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About Rajinder Singh and Pendal’s responsible investing strategies

Rajinder is a portfolio manager with Pendal’s Australian equities team and has more than 18 years of experience in Australian equities. Rajinder manages Pendal sustainable and ethical funds, including Pendal Sustainable Australian Share Fund.

Pendal offers a range of other responsible investing strategies, including:

• Pendal Sustainable Australian Share Fund
• Crispin Murray’s Pendal Horizon Fund
• Pendal Sustainable Australian Fixed Interest Fund
• Pendal Sustainable Balanced Fund
• Regnan Credit Impact Trust
• Regnan Global Equity Impact Solutions Fund

Part of Perpetual Group, Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management. Responsible investing leader Regnan is now also part of Perpetual Group.

Contact a Pendal key account manager here

Looming rate cuts are making ASX-listed smaller companies more attractive, argues Pendal portfolio manager LEWIS EDGLEY

• Small caps buoyed by rate cuts
• Careful stock selection matters
• Find out about the Pendal Smaller Companies Fund

THE prospect of rate cuts over the remainder of 2025 should buoy small cap stocks, says Pendal portfolio manager Lewis Edgley.

Markets are increasingly confident that falling interest rates over the next 12 months will help Australia avoid a prolonged economic downturn, assisted by strong employment and continued immigration.

That kind of macro-economic background has traditionally been positive for small caps, which are more cyclical and growth-oriented than their larger counterparts and hence tend to outperform during periods of monetary easing.

“We know from experience that when rates go down, small caps, as a category, tend to outperform large caps,” says Edgley.

“So, if we believe that there’s not going to be a recession but there is going to be a rate cutting cycle, then running a small cap fund is going to go from feeling like we’ve been driving with a hand brake on the last few years to letting the hand brake off and maybe even getting a bit of a wind behind us.”

Edgley and fellow portfolio manager Patrick Teodorowski co-manage the Pendal Smaller Companies Fund, an actively managed portfolio investing in companies outside the top 100 in Australia and NZ.

Stock selection matters

Edgley says investors are often turned off small caps due to the poor performance of the benchmark ASX Small Ordinaries Index, which has returned 5.4 per cent a year over the past two decades, well below the S&P ASX 100’s 8.8 per cent return.

But the headline performance disguises the fact that the median small cap manager returned 11.15 per cent a year over the same period.

“Small cap investing requires time and resources and the index returns have been lower than large caps,” he says.

“But if you do it well, there’s a huge opportunity to add value and beat the broader market return, while benefiting from diversification.

“We tell people, focus on earnings, not on macro — that’s where you make money in smalls.”

Beware cheap stocks

Edgley says from a valuation perspective, small caps are currently trading in line with their large cap counterparts, despite historically trading at an 8 to 10 per cent premium.

“So, you could say small caps are a bit cheap, and maybe that’s a good time to buy.”

But he cautions that low valuations can be misleading.

“Don’t be allured into buying cheap stocks. Because they’re often cheap for a reason. Might be a bad management team, might be a poor industry, might be a poor capital structure.

“We’ve made money out of cheap stocks in the past, but we’ve also made money out of buying expensive stocks that get more expensive.

“The key is to focus on earnings – if you get that right, you make money.”

Why earnings matter: Breville vs Myer

Edgley says a striking example of the power of focusing on earnings is the long divergence between two household names: Breville and Myer, both of which are held within the small-caps portfolio.

In the 1970s, both were regarded as standout businesses. Each offered exposure to the Australian consumer, and both were widely seen as credible, reliable options for discretionary spending.

But over the decades, their fortunes have sharply diverged.

Breville has consistently innovated and delivered on what consumers want, from the 70s cult hit Melitta drip coffee machine to today’s fully automated espresso stations. That has delivered sustained earnings growth.

“As an investor 15 years ago, you probably would have thought Myer was the bigger, seemingly more credible, safer business to invest in than Breville,” says Edgley.

“But look what happened. Breville has had a five times increase in its earnings per share over this period, whereas Myer’s earnings have faced significant challenges, down almost 90%.”

However, Edgley notes that Myer is currently embarking on a “self-help” journey, which presents a potential opportunity for improvement.

“While Myer has had a tough history, we see a scenario where they could materially improve their earnings through a number of cost and productivity-related improvements that aren’t necessarily understood or captured in today’s share price,” he says.

“This reinforces the point that small caps are all about understanding earnings.”

According to Edgley, both Breville and Myer present as interesting investment prospects today.

“Breville continues to have a robust outlook as it innovates and grows into new markets globally while carefully navigating the short-term uncertainties of US tariffs, while Myer has the potential to significantly improve its earnings through strategic internal changes.

“Understanding these dynamics is key to making informed investment decisions in the small cap space.”