Amy is the Head of Income Strategies at Pendal, leading a suite of active income solutions designed to preserve capital and generate attractive returns for investors. She began her career in 2004 at Citigroup in London and moved into asset management with Thames River Capital in 2007. Since 2017, Amy has been a key member of Pendal’s fixed income team, focusing on delivering strong investment outcomes through active asset allocation and rigorous decision-making. With a career built on navigating complex market cycles, Amy believes in the power of active investing to shape lives and afford financial freedom. She holds a Masters degree in Economics from Emmanuel College, Cambridge.
Here are the main factors driving Australian equities this week according to our head of equities Crispin Murray. Reported by quantitative analyst Lee Ma
GLOBAL EQUITY markets remained soft last week. The S&P500 fell 0.5%, bringing month-to-date performance to -1.9%.
In Australia the S&P/ASX 300 was flat, though there was some meaningful sector divergence. Metals and Mining came off 4.4% while Energy was up 3.5%.
There were two key drivers of this performance:
- Concerns about Chinese growth in the wake of a potential default of Chinese property giant Evergrande, which led to a slump in bulk commodities
- Concerns that central bank policy tightening may come through sooner than expected due to building inflation pressures
Covid and vaccines
Domestic news has been generally positive.
NSW Covid cases peaked at a lower level than feared and vaccine penetration has continued to grow solidly.
Take-up rate for the first dose has risen to 82.2% — up 3.7% compared to last week. This rate has been holding up well. That’s important since a higher rate will help relieve potential strain on hospital systems in future outbreaks and reduce the likelihood of future lockdowns.
The seven-day moving average for second-dose vaccinations is close to 61,000 this week — up from about 50,000 last week.
If this trend continues we might get to 80% full vaccinated — and further relief from lockdowns — before October 18.
Globally case numbers continue to improve, albeit marginally in the UK and the US.
Pendal Focus Australian Share Fund
A high-conviction equity fund with 16 years of strong performance in a range of market conditions
Return-to-school impact can be seen in the higher ratio of kids in case numbers. Though this is tending to sustain case numbers rather than increase them.
Hospitalisation numbers have been slowly improving in both counties. This is leading to some evidence of improved sentiment in the US.
Economics and policy
Tension has been building for weeks around Evergrande, China’s (and the world’s) most indebted property developer.
Evergrande’s bond interest payments are due on September 23. The question is whether the market will see a bankruptcy or some form of debt restructure.
More importantly, people are contemplating whether this will have a cascading effect on China’s other property developers and the economy more broadly.
Weakened sentiment contributed to the precipitous drop in iron ore over the week.
We see great uncertainties around how this will eventually play out. There is a good chance a default is possible with the Chinese government choosing to send a strong message on property speculation.
But we think the outcome will be something the government can manage, since Evergrande is not a state-owned enterprise and is not as systemically important.
That said, we will reach a crescendo of concern over the next couple of weeks.
Outside China, the focus has been on renewed concerns that inflation is set to be persist for longer, leading to faster tapering and potentially an earlier move in rates.
Inflation fears in the US have come mainly from a combination of labour shortages and unemployment insurance (UI) payments coming to an end. The next few weeks will be an important test of the durability of labour tightness.
Recent pricing power surveys clearly indicate that US companies are pushing through pricing increases in a number of sectors. This reflects input price pressures, constrained availability of product and higher labour costs.
Also, gas prices continue to remain far higher than we have seen for years in the US and Europe.
Inventories are low heading into winter. There is a 70% probability of a La Nina weather event, which may lead to a colder winter. There are concerns elevated gas prices will persist, which has already led to higher electricity prices in the US and UK.
All eyes are on the Fed’s September meeting this week.
The market will closely watch how they signal the pacing of tapering and their quarterly update on the dot plots. The dots are expected to have shifted forward again towards the median rate rise around the turn of 2023. The other focus will be on the number of rate rises through to the end of 2024.
Similarly, there was media attention on unpublished forecasts by the ECB, which could see inflation rising 2% by 2025. This may lead to rates rising in 2023.
All this has added to the market’s wariness on the inflation impact on central bank policies.
Markets
The market saw a continued drop in iron ore price. The seaborne benchmark fell 22% last week and is now down 37% for the calendar year-to-date. In contrast the oil price was up by 3% and 45% in the same periods.
The main reason for this disconnect was iron ore’s reliance on Chinse demand, compared to oil’s link to global demand.
The fall in iron ore has been driven by a number of factors.
It had an over-extended starting point, driven by surging steel production in China in 1H21.
The production surge was then met by a dramatic slowdown starting from 2H21: steel production was down 18% in July and a further 10% in August.
The Chinese government has an aggressive rhetoric around holding down steel production through 2H21 for environmental reasons and trying to keep production growth flat for the full year.
These restrictions are expected to continue limiting steel production through to the end of the winter Olympics in late February next year.
2021 Money Management of the Year Awards
Pendal Australian Shares Portfolio
Winner – SMA Australian Equities
Pendal Property Investment Fund
Winner – Australian Property Securities
At the same time the Chinese government has introduced policies to maintain controls of the property sector, which is a key driver of steel demand.
Fears for the overall sector have been exacerbated by the Evergrande situation.
Also weighing on demand, the Chinese economy has been generally softer recently due to rolling COVID lockdowns. More stimulatory policies on local government bond issuance that funds infrastructure spend are unlikely to kick in until 2022.
Lastly, the deteriorating relationship between China and Australia may have led to other measures impacting on the commodity price.
Where to from here? The debate is not so much whether iron ore bounces much, but rather whether it can hold in the US$100s or if it continues to move towards a longer term price of US$70.
The Evergrande final resolution may mark a sentiment low in China and its property sector.
Consequently, some measures to support the economy may be introduced such as the RRR cut.
We should still expect relatively subdued demand from China, but the real-time indicators on the economy look to be near their lows.
Global demand for steel remains strong, as evident from the very high global steel spreads, suggesting there are still cyclical tail winds.
Supply disruption also continues to emerge, with Vale announcing this week its iron ore production next year will be lower than expected.
Overall, this week could be the crescendo in negative sentiment before investors start to rebuilding confidence slowly.
Against this backdrop, equity markets overall are re-testing support levels.
There could be support in early evidence that the US economy is experiencing a re-acceleration as Covid cases start to stabilise and fall. And liquidity from Central Banks remains abundant.
Lastly, we note the rotation of value to growth has been mirrored by fund flows. Inflows to tech and outflows from cyclicals look to be at extremes.
As such, we continue to see cyclicals holding better from here.
About Crispin Murray and 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 an independent, 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 here.
Ada Chan was previously the Senior Analyst for the Prague-based JOHCM Global Emerging Markets strategy. Prior to joining JOHCM, Ada spent three years at GMO LLC as an Investment Analyst for the UK. She previously worked at Baring Asset Management (Baring) for eight years as an Equity Research Analyst in London and in Boston. Prior to 2000, she worked as an International Management Trainee and Equity Research Intern at State Street Corporation and Salomon Smith Barney respectively. Ada holds a MSc in Computer Information Systems and BA in Business Administration, both from Boston University.
Notice of Termination: Pendal Total Return Fund (APIR: RFA0108AU, ARSN: 092 178 704)
The Pendal Total Return Fund (Fund) will terminate effective Thursday, 16 September 2021.
As an existing investor in the Fund, you are affected by this decision.
Why is the Fund being terminated?
We consider that it is in the best interest of investors to terminate the Fund as we are no longer able to efficiently manage the Fund in accordance with its investment objective and investment strategy. We also consider that the Fund has little prospect of significant growth in funds under management in the foreseeable future.
How this affects you?
We will terminate the Fund on Thursday, 16 September 2021 and as soon as practicable, 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.
Applications, transfers or withdrawal requests received after 2:00pm (Sydney time) on Wednesday, 15 September 2021 will not be accepted.
What does this mean for you?
The cash proceeds from the termination of the Fund will be paid directly to your nominated bank account on or around Friday, 1 October 2021.
If there is a final distribution for the Fund, this will be paid directly to your nominated bank account prior to the cash proceeds from the termination. The details of the final distribution will be included in your December quarterly statement.
You will also receive an annual tax statement following the end of the financial year during July/August 2022.
Questions?
If you have any questions, please contact our Investor Relations Team during business hours on 1300 346 821.
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.
Fund Objective: The Fund aims to provide a return (before fees, costs and taxes) that exceeds the S&P/ASX Small Ordinaries (TR) Index over the medium to long term.
A new Trump Administration, mass restructuring of Japanese corporates, artificial intelligence and weight loss drugs are just some of the trends that will drive global equities in 2025, says Pendal’s CHRIS LEES
- Global mega-trends resetting investing
- Mid-caps set to benefit
- Find out about Pendal Global Select Fund
- Watch a Pendal webinar covering the outlook for global equities and emerging markets
AS THE biggest global election year in history comes to a close, a range of new opportunities – and risks – are emerging for global equities investors in 2025.
Just after the US election, Pendal Global Select fund manager Chris Lees joined a live webinar with Pendal Global Emerging Markets Opportunities fund manager Ada Chan to discuss the major trends affecting investors.
You can watch the full webinar here.
Below are Chris Lees’s key points. Click here for Ada Chan’s insights.
The Trump effect
“Our assumption is that Trump 2.0 will be slightly different from Trump 1.0 and will probably be quicker to make some deals,” says Lees.
Mid-cap stocks are already beneficiaries.
“There are a lot of really exciting mid-cap stocks around the world, in many geographies, in many sectors, where earnings have come through the last few years but share prices haven’t done much because global markets have been obsessed with the Magnificent Seven [technology stocks],” Lees explains.
“Partly the better performance from mid-caps is a result of the Trump election, because the new Administration will be very business friendly.
“We are also seeing a better performance from the financials and cyclicals. I think that is sustainable.”
Japanese restructuring
Opportunities in Japan involve corporate restructuring, Lees says.
Pendal Global
Select Fund
Something very
different in
global equities
“Japanese corporates are embarking on western style restructuring and seeing huge earnings growth and huge revenue growth. That’s the excitement in Japan – politics is much less the driver.
He calls it a regime change, and it was triggered by the Japanese stock exchange writing to companies telling them to restructure to get their price-to-book values above one.
“The threat is they will be de-listed [by the exchange] and no CEO wants to be delisted. It’s a powerful stick,” Lees says.
“There’s a whole generation of really, really exciting new Japanese restructuring opportunities for global investors.”
Second generation GLP-1 drugs
Lees calls the development of GLP-1 drugs, better known as weight loss drugs, a “genuine regime shift”.
“Humankind has never had these before … and when you get a regime shift you tend to overshoot.”
He says investors in Novo Nordisk and Eli Lilly, the manufacturers of first generation obesity drugs, have done well. But the side-effects of the drugs, including gastro issues, vomiting and diarrhea, are negatives. There is also too much weight loss from muscle, and not enough from fat.
“The next generation of weight loss drugs is what we are most excited about. The are 20 plus next generation anti-obesity drugs in phase one, two or three trials. Eli Lilly and Novo Nordisk have about half of them, but the others are owned by some really exciting mid-cap companies,” Lees explains.
“They have less side effects and more of the weight loss is from fat. So that whole market will evolve.”
Artificial intelligence
On artificial intelligence, Lees says the big question is who is going to make money, apart from chip maker Nvidia?
“At the moment, the majority of profits have gone to one stock. Can we find other stocks that can use AI to become inherently more profitable for shareholders?” he asks.
“The bear case for AI is that in the history of technology, successful tech is better, faster, cheaper. But AI isn’t better, faster cheaper because …. Its three to five time more expensive to do an AI driven search than it is a regular Google search.”
“Don’t be wholeheartedly positive, because this technology currently is slower and more expensive. It’s fascinating.”
Find out more about Pendal Global Select Fund
About Chris Lees and Nudgem Richyal
Chris Lees and Nudgem Richyal are senior fund managers of Pendal Global Select Fund. The pair have been working together as investment managers for more than 20 years.
Chris has more than 32 years of investment industry experience. He joined Pendal Group’s UK-based asset manager J O Hambro Capital Management (JOHCM) in 2008 after spending 19 years at Baring Asset Management, ultimately as head of its global sector team.
Nudgem has 22 years of industry experience, joining JOHCM with Chris in 2008. He was previously an investment director with the Global Equity Group of Baring Asset Management, where he worked closely with Chris since 2001.
About Pendal Global Select Fund
Pendal Global Select Fund is a global equities portfolio with a distinctive, yet proven approach. It is a ‘quantamental’ fund combining quantitative and fundamental investing with decades of experience.
Instead of following the crowd, portfolio managers Chris Lees and Nudgem Richyal focus on “fat tail” winners in the distribution of stock returns.
These are the long-term compounders, stocks in early-stage growth or those undergoing transformation or recovery.
About Pendal
Pendal is an Australian investment manager focused on delivering superior investment returns for clients through active management.
Our experienced, long-tenured fund managers have the autonomy to offer a broad range of investment strategies with high conviction based on an investment philosophy that fosters success from a diversity of insights and investment approaches.
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.
In a new short video, Pendal Global Select portfolio manager CHRIS LEES outlines the themes driving his team’s investment decisions in 2024
- Anti-obesity theme is revealing winners and losers
- Trend from mega-caps to mid-caps
- Find out about Pendal Global Select Fund
THERE are ten major themes driving global equities investing right now, according to Pendal portfolio manager Chris Lees.
In his latest quarterly video (watch below), Chris briefly outlines each theme and how he and Pendal Global Select Fund co-manager Nudgem Richyal aim to take advantage.
Chris and Nudgem remain enthusiastic about the biotech theme, buying a mid-cap stock with positive new drug results in the anti-obesity space.
But he also warns investors to be aware of anti-obesity losers among snacking stocks and consumer staples.
“It’s also becoming bad news for the healthcare sector. So we would expect the healthcare sector to deteriorate to red lights as well.”
Chris sees a tech-driven bull market continuing to broaden away from mega caps into midcaps — a trend he predicted he spoke about in February.
“The technology sector’s got positive fundamentals and positive trend, but it’s now expensive and we would expect other cyclical sectors above it to start improving.”
Chris says he and Nudgem are now “80 per cent bullish and 20 per cent bearish”.
In this video, Chris also outlines three possible scenarios — and their likelihood — going forward.
Watch the video above.
Pendal Global
Select Fund
Something very
different in
global equities
Find out more about Pendal Global Select Fund
About Chris Lees and Nudgem Richyal
Chris Lees and Nudgem Richyal are senior fund managers of Pendal Global Select Fund. The pair have been working together as investment managers for more than 20 years.
Chris has more than 32 years of investment industry experience. He joined Pendal Group’s UK-based asset manager J O Hambro Capital Management (JOHCM) in 2008 after spending 19 years at Baring Asset Management, ultimately as head of its global sector team.
Nudgem has 22 years of industry experience, joining JOHCM with Chris in 2008. He was previously an investment director with the Global Equity Group of Baring Asset Management, where he worked closely with Chris since 2001.
About Pendal Global Select Fund
Pendal Global Select Fund is a global equities portfolio with a distinctive, yet proven approach. It is a ‘quantamental’ fund combining quantitative and fundamental investing with decades of experience.
Instead of following the crowd, portfolio managers Chris Lees and Nudgem Richyal focus on “fat tail” winners in the distribution of stock returns.
These are the long-term compounders, stocks in early-stage growth or those undergoing transformation or recovery.
About Pendal
Pendal is an Australian investment manager focused on delivering superior investment returns for clients through active management.
Our experienced, long-tenured fund managers have the autonomy to offer a broad range of investment strategies with high conviction based on an investment philosophy that fosters success from a diversity of insights and investment approaches.
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.