Through investment in WATC green bonds, Pendal is supporting projects that protect WA’s natural assets while funding practical climate and infrastructure solutions

• Protecting forests, wetlands and rangelands
• Funding renewable energy and adaptation
• Find out more about Pendal’s Responsible Investing capabilities 

REGNAN Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund are invested in two Western Australia Treasury Corporation (WATC) green bonds.

The first WATC green bond finances renewable energy, clean transport and water infrastructure.

The second WATC green bond, which launched in 2026, continues to support these categories, with the additional inclusion of projects explicitly linked to environmental resilience outcomes[1].

These resilience focused allocations include projects supporting natural capital.

This includes the addition of approximately 6.5 million hectares¹ to Western Australia’s conservation estate, providing protection across wetlands, rangelands, forests, marine environments and areas of threatened flora and fauna.

A number of these reserves are jointly managed with Traditional Owners, supporting employment, training and economic participation in regional and remote areas of Western Australia.

The bond framework also permits funding aligned with the Forest Management Plan for the South West, covering approximately 2.4 million hectares¹ of predominantly native forest managed for long-term forest health and resilience.

This represents a shift away from large-scale native timber logging and includes protections for at least 400,000 hectares¹ of karri, jarrah and wandoo forest, alongside new forest and fire research programs and expanded recreation opportunities.

Following the cessation of native forest logging, eligible projects also include the expansion of softwood plantation estates, supporting long-term timber supply and reducing pressure on native forests.

Alongside these natural capital-related investments, the bond continues to support the same categories as the prior WATC green bond.

This includes renewable energy such as wind farms and school solar programs, energy efficiency through large-scale battery projects, and climate change adaptation measures, including a desalination facility powered by renewable energy.

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[1] Sustainable Bond Program Allocation and Impact Report

From geothermal baseload to wind generation, Pendal’s sustainable fixed income strategies are supporting renewable energy across New Zealand

• Funding renewable electricity generation in New Zealand
• Supporting cleaner, more resilient energy systems
• Find out more about Pendal’s Responsible Investing capabilities 

REGNAN Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund invested in an AUD‑denominated green bond issued by a New Zealand electricity generator, supporting renewable electricity generation in a market that is already largely decarbonised.

New Zealand’s electricity system is among the cleanest in the developed world, with the majority of generation coming from renewable sources, particularly hydro, geothermal and wind.

This provides a low‑emissions baseline while also allowing new renewable capacity to directly displace remaining thermal generation and support growing electricity demand as transport and industry electrify.

Proceeds from the bond are allocated to a portfolio of operating renewable energy assets, predominantly geothermal power stations and wind farms located across the North Island and lower North Island[1].

Eligible geothermal assets include the Rotokawa, Ngā Awa Pūrua, Mōkai and Ngātamariki plants, while wind assets include Tararua, Turitea (North and South), Waipipi, Mahinerangi and Kaiwera Downs[2].

Together, these projects represent several hundred megawatts of installed renewable capacity and form part of New Zealand’s baseload and variable renewable generation mix.

Geothermal power plays a critical role in New Zealand’s electricity system because it provides continuous, weather‑independent generation.

Geothermal plants harness naturally heated water and steam from deep underground reservoirs, using this energy to drive turbines and generate electricity before reinjecting the fluids back into the geothermal system.

While geothermal is not entirely emissions‑free, lifecycle emissions are materially lower than fossil‑fuel generation and well below grid‑average intensities, particularly in a system where geothermal displaces coal‑ or gas‑fired power.

Wind generation complements geothermal by providing additional zero‑carbon electricity during periods of strong wind conditions, helping to diversify supply and reduce reliance on hydro inflows during drier years.

Collectively, these assets contribute to a resilient, predominantly renewable electricity system and support New Zealand’s ongoing transition to a low‑emissions economy.

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[1] Mercury NZ Limited Green Financing Framework

[2] Mercury Retail Green Bond Offer

A social bond issued by South Korea’s primary public housing developer is helping fund new public rental housing for lower-income households

• Financing homes for lower-income tenants
• Supporting energy-efficient affordable housing
• Find out more about Pendal’s Responsible Investing capabilities 

ACCESS to affordable housing has become increasingly challenging in many developed economies.

Rising housing costs can place significant pressure on lower-income households, particularly younger people, low-income workers and those at risk of homelessness.

Stable and affordable housing is often a prerequisite for securing employment, accessing services and participating fully in society.

Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund invested in an AUD-denominated social bond issued by Korea Land and Housing Corporation, South Korea’s primary public housing developer.

Proceeds from the bond are dedicated to affordable housing projects, including the construction of new public rental housing, refurbishment of existing housing stock and rental support for lower-income tenants.

Eligibility is focused on households earning below 50 per cent of the national median income[1], with rents set well below market levels.

Thousands of additional affordable homes are expected¹ to be delivered through these programs, helping reduce housing stress and improve access to long-term housing for underserved households.

The bond is primarily supporting the development of new affordable housing rather than refinancing existing projects.

Importantly, all newly constructed dwellings financed through the program must meet South Korea’s Zero Energy Building standard.

While the primary objective of the bond is social, improved building efficiency provides an important environmental co-benefit by supporting climate stability through lower energy demand over the life of the assets.

Like the fund’s investments in Housing Australia bonds, this investment supports long-lived social infrastructure that seeks to improve housing outcomes for vulnerable communities while also delivering environmental co-benefits through more energy-efficient buildings.

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[1] Korea Land & Housing Corporation Social, Green and Sustainability Bond Framework

Here are the main factors driving the ASX this week according to Pendal portfolio manager JIM TAYLOR. Reported by portfolio specialist Chris Adams

• Find out about Pendal Focus Australian Share fund

THE ramifications of the unrelenting rise in long-term US bond yields were acutely in focus last week.

US Treasury Secretary Scott Bessent surprised the market with a strategy to burn bond market short-sellers by doubling the size of long-duration bond buybacks out to the end of the year.

Bessent has promised lower long-dated yields since gaining office and this strategy is the latest in a long line of attempts to achieve that goal.

It lowered yields for a day or so.

But related strength in gold (+2%), bitcoin (+22.6%) and commodities (Brent crude +6.6%) – along with US dollar weakness (DXY -0.9%) – was maintained to the end of the week.

We will see how Fed Chair Kevin Warsh responds to this move in his commentary from Jackson Hole this week.

Minutes from the July Fed meeting were seen as less hawkish than feared. This had a modest calming effect and saw chances of near-term hikes little moved.

Elsewhere, data centres (DCs) are becoming increasingly critical to upcoming US elections. Numerous state governors who have been big supporters of DC development are now under pressure from rivals to stem further development on escalating concerns about power prices and water consumption.

Locally, the FY26 Australian reporting season heads into its last week.

Results have been very mixed and share price reactions have displayed the volatility evident in previous seasons.

The S&P/ASX 300 fell 0.4% last week, while the S&P 500 was down 1.4% and the NASDAQ lost 2%.

Bessent and Treasury activism

The US Treasury announced it would double its buyback at the long end of the government bond yield curve.

This aims to lower long-term yields, since the buybacks will be funded by issuing T-bills (which have maturities of less than one year). 30-year yields fell about 6bps immediately after the announcement.

The Treasury buys bonds on a weekly basis. Between now and November there are seven nominated dates where they will be buying 10-to-20-year and 20-30-year bonds.

It has previously been buying about US$2bn each time, so this equates to something in the order of an additional US$14bn buying of long-dated bonds.

This represents about 0.5% of the stock in that maturity bucket.

Bessent’s framing for the surprise announcement is broadly as follows:

1. The bond market was mispricing long-dated US bonds given thin August liquidity with a lot of corporate (AI) issuance and “many underlying factors” that the market is not looking at. He noted a lot of the corporate issuance was almost yield-agnostic given the build-out of AI and high returns that companies are expecting. Most commentators agree liquidity is thin in August. However, the unusual environment of the private sector crowding out the public in terms of issuance – and the resulting higher yields – is a feature we may well see more of, rather than less, in the medium term. 
2. The enhanced buyback operation had a “signalling” component intended to show the administration thinks yields do not reflect fundamentals. The signal is clear and may prompt a reconsideration of pricing, but only if investors buy the arguments being made.
3. There is scope to upsize operations if appropriate or draw on other undisclosed elements of a “big toolkit” (or both). Escalation is available but also carries the risk that it may look like the Treasury is trying to defend a particular yield level.
4. Investors have “bad information” – including misunderstanding of and misinformation around fiscal dynamics – and there is speculation about “asymmetric information” the government may possess. It seems a stretch to think bond investors don’t have a pretty good insight into fiscal dynamics – and if information really was poor, this could imply higher term premia.
5. There is a “very good chance” the US has hit peak deficit, with consolidation in 2026 and one-time tariff rebates that will not be issued in 2027, and there will be a new focus on fiscal consolidation. In our view the market is sceptical on the prospects of material deficit reduction, including through another DOGE-like effort to eliminate waste.
6. Treasury and the Fed will “work together” to offset any adjustment in Fed balance sheet policy. Warsh has previously indicated he is uncomfortable with the duration of Fed holdings (versus the market duration), so Bessent is indicating issuance to offset a Warsh-driven maturity curtailment. 
7. The US continues to have a “strong-dollar policy” and the dollar is only back down to where it was a couple of months ago, which should not make any material difference to inflation. The risk is policy errors could create a scenario that may see a much bigger decline in the dollar that could, in conjunction with concerns around financial repression, raise inflation and inflation expectations. 

US policy and macro

The July meeting minutes from the rate-setting Federal Open Market Committee were more dovish than expected and may suggest Warsh was not under as much pressure as thought.

Notwithstanding this interpretation of the minutes, economic data since the July meeting (GDP, retail sales, CPI, PPI and payrolls) have all surprised to the downside, taking out some of the impetus to raise rates near term.

Key observations from the minutes included:

Current interest rates:

• While “most” participants supported the decision to maintain the target range for the fed funds rate at 3.50-3.75%, “several” favoured a rate hike at the July meeting.
• “Some” judged that financial conditions “might not currently be sufficiently restrictive” to return inflation to 2%.

Interest rate outlook:

• “Many” participants judged that rate hikes would likely be necessary if inflation did not decline.
• “Various” participants noted that financial conditions had tightened over the intermeeting period between the June and July FOMC meetings, partly reflecting “market expectations that the Committee would adopt a more restrictive policy stance before long”.

Inflation outlook:

• While participants judged that inflation risks were skewed to the upside, “most” participants expected declining inflation over the rest of the year “as the effects of tariffs and earlier energy price increases wane”.
• “Several” saw tariff passthrough to prices as “largely complete” and upward pressure from AI-related cost increases so far “limited to select categories”.
• “Many” noted “a protracted conflict” in the Middle East could boost inflation and that several years of above-target inflation “could begin to affect inflation expectations”.

Labour market:

• Regarded as stable with “some” participants noting nominal wage growth was “moderate and consistent with inflation moving toward 2 per cent”.
• Economic activity is growing at a “solid” pace, supported by strong consumer spending and business investment, concentrated in AI-related spending.
• “Most” participants noted that higher equity prices had supported consumer spending, especially among higher-income households.

Meeting schedule:

• Chairman Warsh “observed that six scheduled meetings per year, held roughly every two months, would allow more information to accumulate between meetings and provide policymakers and the staff more time to consider strategic monetary policy moves”.
• The minutes noted that Chairman Warsh had solicited feedback from committee members on the idea, but that no decisions were made and any change would not affect the schedule over the rest of 2026. 

Australia policy & macro

The number of employed people fell 15.9k in July, versus consensus expectations of +13.5k.The unemployment rate rose to 4.5% consensus, which is in-line with the RBA’s year-end forecast. Consensus was at 4.4% for July.

The participation rate at 66.85% was a touch below consensus (66.9%).

Hours worked were down 0.6% month/month and +0.2% year/year.

Overall, the data was on the soft side and provided further evidence that the labour market is weakening slowly.

It moved the chance of a rate hike by year end from 68% to 62%.

Markets

In the US, it is worth noting that Walmart was down 9% despite a modest beat-and-raise at it 2Q27 result.

The CFO noted that higher fuel prices are weighing on lower-income shoppers and as fuel prices climbed above US$4/gallon during the quarter there appeared to be “a psychological impact” that led to visible trade-offs by customers, with June being “a little more obvious” in terms of this.

The Australian market was led by healthcare (+9.1%) and resources (+5.6%). Consumer discretionary (-6.2%) and financials (-4.4%) were weaker, with banks (-4.8%) weighing on the latter.

It has been interesting to note that the bank sector has moved from “overbought” to “oversold” territory according to the relative strength index (RSI) indicator, all within August.

This continues this year’s trend of the sector’s relatively rapid oscillation between the two extremes.

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About Jim Taylor and Pendal Focus Australian Share Fund

Drawing on more than 25 years of experience investing in top-performing Australian companies and a background in accounting, Jim manages our Long/Short Fund and co-manages our Imputation Fund. He is a Chartered Accountant with membership of the Australian Institute of Chartered Accountants.

Pendal Focus Australian Share Fund is managed by Crispin Murray. The fund has beaten its benchmark in 14 years of its 18-year history (after fees), across a range of market conditions. 

Find out more about Pendal Focus Australian Share Fund here.

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

As electricity systems decarbonise, utility green bonds are emerging as an important way to fund the infrastructure needed for the transition. Pendal’s MURRAY ACKMAN explains

• Renewable infrastructure requires significant long-term investment
• Green bonds fund essential transition infrastructure
• Find out more about Pendal’s Responsible Investing capabilities 

ELECTRICITY generation remains one of the largest contributors to global greenhouse gas emissions.

Decarbonising electricity is one of the most direct pathways available for reducing emissions across the broader economy.

As transport, buildings and industrial processes become increasingly electrified, the importance of reliable, low-emissions electricity systems will increase.

This requires more than renewable generation. It requires networks, transmission lines, substations, storage assets and the infrastructure needed to connect renewable energy to the grid.

These are long-life assets that require substantial amounts of capital.

One of the largest themes across both Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund is investment in green bonds issued by utility and electricity infrastructure companies.

Many of the utility green bonds held within the portfolio support exactly this type of investment.

In Australia, Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund invest in Victoria Power Networks’ green bond. Victoria Power Networks operates the electricity distribution network across Melbourne and western Victoria.

Bond proceeds support network upgrades, smart meters and grid infrastructure that helps increase renewable energy connectivity.

As larger volumes of solar, wind and battery projects are developed, these network investments become increasingly important.

In New Zealand, Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund invest in Mercury’s Green Bond.

Mercury’s eligible assets include geothermal power stations and wind farms that contribute to one of the most renewable electricity systems in the developed world.

Geothermal generation is particularly valuable because it provides stable renewable electricity regardless of weather conditions, complementing wind and hydro generation. 

Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund also invest in green bonds issued by SSE in the United Kingdom. SSE owns and operates regulated electricity networks as well as renewable generation assets and is investing heavily in the infrastructure required to support the UK’s energy transition.

This includes both renewable generation and the electricity network infrastructure required to connect that generation to consumers.

Offshore funds flowing into Australian projects

Another example is Iberdrola. Although headquartered in Spain, Iberdrola has become one of Australia’s largest renewable energy investors through its ownership of renewable energy and transmission infrastructure.

An offshore issuer does not necessarily mean offshore impact. Capital raised through green bonds can ultimately be deployed into projects that support Australia’s own energy transition.

Climate change is a global challenge. The atmosphere does not distinguish between a tonne of carbon avoided in Victoria, Scotland, New Zealand or South Australia.

What matters is whether capital is helping build the infrastructure required for lower-emissions electricity systems.

From a portfolio construction perspective, utility issuers also possess characteristics we find attractive as credit investors.

Many own essential infrastructure assets, operate under regulatory frameworks and generate relatively predictable cash flows.

The services they provide are fundamental to the functioning of modern economies and demand is often resilient across economic cycles.

As a result, green bonds from utilities can provide an attractive combination of financial and sustainability characteristics.

They allow Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund to invest in businesses with investment-grade credit profiles while supporting the generation, transmission and distribution infrastructure required for the transition to a lower-emissions economy.

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

MARKETS are relatively quiet now that US earnings season is over and the northern summer is in full swing.

Oil bounced back last week (Brent crude +5.9% to US$88.52) as it became evident that there may not be any clear solution to the Iran standoff, leaving the market with increased but not full supply. In this environment we expect oil to trade in the US$85-90 range.

Equity markets and bond yields were largely unchanged. The S&P 500 was +0.4% and the NASDAQ +0.2%.

The AI world saw an attempt to resolve its funding challenges with a memorandum of understanding (MOU) between Nvidia and six asset managers to establish a platform seeking access to US$500 billion of third-party capital.

We also saw US neoclouds (specialised companies that rent out GPUs to build and train AI systems) highlighting the tightness of compute supply leading to higher prices and extended contracts on older GPU generations – a positive for the bull case that these business models have longer duration than many fear.

In Australia we had the first substantive week of reporting, skewed to financials, where both banks and insurance disappointed on concerns relating to their outlooks and the cycle.

Companies such as Seek, SGH Group and Cleanaway also noted subdued conditions.

Utilities outperformed, with fears of weak power prices not set to impact earnings as much as feared in FY27, although the problems remain.

There was some M&A action with a private equity bid for Cleanaway, which appears to have board support.

Overall, the S&P/ASX 300 fell 1.5% but remained up 3.9% quarter-to-date.

US macro and policy

July consumer price index (CPI) data was slightly better than expected.

Headline CPI rose 0.07% month/month and 3.4% year/year while core CPI was +0.22% and +2.5% respectively. The three-month annualised rate has dropped below the US Federal Reserve’s 2.0% target.

Core producer price index (PPI) data was firmer at 0.2% month/month with portfolio management fees being the main driver – these are market driven so are of less concern.

Still, the imputed personal consumption expenditure (PCE) index – the Fed’s preferred gauge for inflation – is expected to be 0.32% month/month and +3.4% year/year.

This is too high, but Fed Chair Kevin Warsh apparently plans to resolve this by changing the measure.

The data is unlikely to shift the views of the three members who dissented at the last Fed meeting in favour of higher rates – nor those supporting no hikes for the rest of the committee.

It does take some pressure of Warsh, and we have seen 10-year bond yields hold below the 4.75% resistance level, however 30-year yields remain at their highs.

Elsewhere, July payroll data was soft but the labour market remains healthy, as shown in benign initial jobless claims data versus previous years

There was also some softer retail sales data, though it is worth noting that surveys such as the Evercore ISI measure indicate the economy remains in good shape and may be seeing a pickup in the growth rate.

On balance, this suggests that rate hikes are probably still more likely to happen.

Energy and the Middle East conflict

It looks increasingly likely we will have a standoff through to the US mid-term congressional elections.

Iran appears to believe it has bargaining strength and is pushing for some form of toll on the Strait of Hormuz, reparations for war damage, and to punt the nuclear issue to a later date.

For its part the US is unprepared to capitulate to those terms and believes so long as oil is in the US$80-90 range – relying on the Strait being somewhat porous for flows – it will not be a material election issue.

Sustaining oil at current levels, alongside questions over its missile capability, mean the US is unlikely to launch a new campaign against Iran – leaving a stalemate.

Australia macro and policy

The Reserve Bank of Australia (RBA) held rates at 4.35% as expected. Its tone was slightly hawkish, consistent with our view that it sees risk from inflation’s persistence above target feeding into long-term expectations over time.

The RBA noted the weakening housing market, but also flagged the AI investment boom and higher energy prices from the ongoing disruption to supply.

We note Commonwealth Bank (CBA) indicated the decline in its housing approvals had stabilised in the last few weeks and was down 16% since the May budget, compared to -20% at Westpac, -16% at National Australia Bank and -12% at ANZ.

CBA said the current level was still consistent with around 4% loan growth, which is subdued but no credit crunch.

Housing loan commitment data was -5.4% in the June quarter, with owner-occupier -3.3% and investor -8.6%.

Seek data indicated job listings fell 0.4% month/month in July and 6% year/year, and that applications per ad had hit record levels.

In its result, CBA provided a chart which highlighted the difference in spending patterns from mortgaged to non-mortgaged customers, with the former seeing a decline in real spending (i.e. inflation-adjusted) over the last five years.

The reason is the shift higher in rates from their 2021 lows of 0.1% and the removal of covid stimulus.

This explains some of the significant shift in spending mix towards services and experiences over goods.

AI

There is a lot of focus on AI funding with the joint announcement from Nvidia, BlackRock, Appollo, Blackstone, Goldman, KKR and Brookfield of an MOU to establish an independent compute-financing platform targeting over US$500 billion of third-party capital. To be clear, there is no actual financial commitment made yet.

The novel aspect of the MOU was Nvidia offering to provide partial insurance on the residual value of its hardware (~25%) in return for a usage-linked share of revenue from it.

This adds another layer to the debate over sustainability of AI investment spending.

Bulls say this:

• Addresses funding – which is the largest constraint on the sector;
• Alleviates concerns around funding circularity, with third-party underwriters taking the first loss; and
• Is underpinned by evidence that residual values of hardware are above expectations.

The bears’ concerns are:

• The structure highlights the problem that Nvidia customers cannot afford to pay;
• The funding will enable additional capacity which will erode residual value; and
• The risks are correlated, in that if the US$125 billion liability for Nvidia gets called it will coincide with a fall in demand for their products and therefore revenue.

The essence of this debate comes back to the supply and demand issue for compute.

In this vein, last week saw comments from US neoclouds highlighting there is a clear shortage of compute, leading to them signing higher price contracts and extending the life of old chips.

• Coreweave delivered a strong 2Q26 result with revenue more than doubling and FY26 revenue and operating income guidance upgraded by ~2% and ~6% respectively. The most important takeaway was not the modest guidance increase but evidence of materially improving unit economics. Management disclosed a ~25% increase in pricing, noting that new contracts are being signed at contribution margins five-10 points above recent vintages, and highlighted that even older GPU generations continue to be renewed at attractive pricing. The commentary suggests AI compute remains structurally supply constrained, allowing Coreweave to capture increasing economic value as customers monetise inference workloads.
• Nebius delivered an exceptionally strong 2Q26 result, with revenue increasing 454% year/year to US$582 million and adjusted EBITDA margin expanding to 41% from 32% in 1Q26, while reaffirming FY26 revenue guidance of US$3.0-3.4 billion. As with Coreweave, the key takeaway was not the headline growth but further evidence that AI compute pricing remains extremely tight. Management disclosed that its first Blackwell (an advanced GPU) capacity auction cleared 15% above previous peak pricing and 20% above internal expectations, while noting it could effectively sell all planned 2027 capacity today but is intentionally retaining capacity to capture higher future pricing. It also highlighted exceptionally attractive economics on new contracts, with yields of US$20-25 million per megawatt, customer prepayments funding 50-60% of associated capex, and negotiations underway for shorter-duration capacity at US$40-50 million per megawatt. Combined with commentary that capacity continues to sell out as quickly as it comes online, the result reinforced investor confidence that AI compute remains structurally supply constrained and that Nebius is increasingly capturing that value through superior pricing and contract economics.

Looking at neocloud GPU rental rates there have been pricing increases across all generations – even the older ones – since March. This suggests that supply/demand dynamics remain favourable.

Locally, Firmus announced the acquisition of Benmax’s Fabrication Design and Projects business for $300 million, vertically integrating a key component of its AI infrastructure supply chain.

Benmax designs and manufactures Firmus’ HyperCube AI Factory system in regional NSW, enabling rapid deployment of AI data centres while reducing energy and water consumption.

They have capacity to manufacture more than 1GW of HyperCubes each year and were used in Firmus’ CDC Melbourne 42MW GB300 installation.

The deal helps Firmus control delivery timelines, capture a greater share of project economics and support future deployments, including the recently announced 360MW Batam project in Indonesia.

Markets

The US market rose marginally last week and remains in good technical shape, having broken to new highs with good breadth and not too heavily overbought.

At a sector level we are seeing much more constructive trends in the healthcare sector, while financials and tech both have strong breadth.

So the path of least resistance seems higher, however with earnings season complete – and a seasonally weaker part of the year – we may be set for a phase of consolidation before moving higher into the year end. All this is subject to the economy and rates.

The S&P/ASX 300 fell by 1.5% led by the banks (-3.8%), notably Westpac (-6.8%), on indications in their results that competition was a greater headwind to margins than expected.

Insurers also underperformed on some signs that the cycle was also impacting margins – seen most clearly in the IAG result.

Industrials (-2.9%) were also weaker on some signs of slowing economy in the SGH, Seek and Orora results.

Utilities (+7.4%) outperformed on better-than-expected results as weak electricity pricing is not flowing through the P&L as quickly as expected.

Tech (+3.3%) and healthcare (+2.9%) continued their recoveries but remained the worse performing sector CYTD.

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 flagship Pendal Focus Australian Share Fund is a high-conviction equity fund with a two-decade track record 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

Green bonds are helping finance the practical projects needed to support Australia’s shift to a lower-emissions economy.

• Backing Australia’s low-carbon transition
• Funding renewables, transport and climate resilience
• Find out more about Pendal’s Responsible Investing capabilities 

AUSTRALIA’S transition to a low-carbon economy will require more than renewable energy generation alone.

As electricity becomes increasingly sourced from renewables, reducing emissions will depend on electrifying transport, improving building efficiency and investing in the infrastructure needed to support a more sustainable economy.

Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund invested in the Australian Commonwealth Government’s second green bond issuance.

Proceeds support a range of projects[1] that contribute to this transition, including renewable energy generation, home battery programs and infrastructure that supports the electrification of transport.

Examples include funding for zero-emissions bus infrastructure in Sydney, helping expand the use of lower-emissions public transport.

The bond also supports projects aimed at improving resource efficiency and strengthening Australia’s circular economy.

This includes initiatives such as the Recycling Modernisation Fund and programs that improve water efficiency and sustainable water use.

In addition, funding is directed towards improving the energy performance of social housing through measures that reduce energy consumption and household energy costs.

Together, these investments support the long-term transition to a lower-emissions economy while delivering practical benefits through more efficient infrastructure, improved resource management and reduced energy costs for households.

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[1] Green Treasury Bonds | AOFM

Targeted green bond investment can help finance measurable environmental outcomes.

• Funding greener buildings and renewable energy
• Supporting transparency, oversight and measurable impact
• Find out more about Pendal’s Responsible Investing capabilities 

THE transition to a lower-carbon economy requires more than new renewable energy generation. Improving the efficiency of existing buildings is also important, as buildings account for a significant share of global energy consumption and emissions.

Financing both renewable energy and more efficient infrastructure is therefore an important part of reducing emissions over time.

Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund invested in an AUD-denominated green bond issued by OCBC, a Singapore-headquartered bank with a long track record in sustainable finance across the Asia-Pacific region.

The bond is issued under OCBC’s Sustainability Bond Framework[1], which supports a range of environmental projects including renewable energy, green buildings, clean transportation, waste management and water infrastructure.

Independent review of the framework[2] has concluded that it is aligned with recognised international sustainable finance standards.

Proceeds are expected to be primarily allocated to renewable energy and green building projects across Australia and Singapore.

Historically, these investments have included renewable energy assets alongside energy-efficient commercial buildings.

In OCBC’s most recent reporting, approximately 91 per cent[3] of allocated proceeds were directed to green buildings and 9 per cent to renewable energy projects.

These investments help reduce energy consumption, lower emissions and support the gradual transition of existing infrastructure toward more sustainable outcomes.

An important feature of the bond is the governance surrounding the use of proceeds.

Eligible projects are assessed under OCBC’s sustainability governance processes and are subject to external review and ongoing reporting.

For Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund, this provides additional confidence that capital is being directed toward clearly defined environmental activities with transparent oversight and accountability.

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[1] OCBC Sustainability Bond Framework

[2] Second party opinion on OCBC Sustainability Bond Framework from sustainalytics.pdf

[3] OCBC Green Bond Report 2024

Here are the main factors driving the ASX this week, according to analyst and portfolio manager ELISE MCKAY. Reported by portfolio specialist Chris Adams

• Find out about Pendal Focus Australian Share fund
• Find out about Pendal Horizon Sustainable Australian Share Fund

US EQUITIES rallied to fresh record highs last week, with the S&P 500 up 3.6% and the Nasdaq 100 up 5.2%, as the momentum unwind subsided and stronger-than-expected earnings stabilised the technology trade. 

The week’s key takeaways were:

• The US labour market softened across every component of Friday’s payrolls, but activity indicators stayed resilient and CPI this week is a critical read for the policy path – the market is now pricing less than two hikes with cuts pushed out to late CY27.
• 2Q results have put the AI-cannibalisation fear over software to rest (for now), with the group among the best-performing sectors on net EPS beats and upgrades. This is a positive read-through for Xero, Technology One and Wisetech, though one that now rests on continued earnings delivery;
• Hedge fund positioning is clean and light – in the sense that net and gross exposures are relatively low, there are fewer crowded trades, and they have plenty of cash. Index correlation is also near record lows. All up this is a favourable backdrop for active stock selection both offshore and locally.
• Commodities were volatile, with precious metals rallying while crude oil round-tripped on conflicting Iran signals.

The macro backdrop was dominated by the long end of the US yield curve. US Federal Reserve Chair Kevin Warsh’s hawkish tone at the prior week’s FOMC (holding rates on a 9-3 vote while stressing the committee would act if inflation accelerated) drove the 30-year yield to a 19-year high of ~5.21%. 

A much softer US payrolls print on Friday then reversed much of the move, pulling the 10-year back towards 4.6% and moving September rate-hike odds from 67% to 44%, reinforcing the constructive tone for equities. 

The S&P/ASX 300 gained 3.3% with resources (+6.2%) and a software-led rebound in Technology (+8.5%) contributing. 

Domestically, this week’s RBA decision is in focus where the market has priced a hold but looks for any read through for the next move, and reporting season continues.

US macro and policy

The July employment report was soft across the board with payrolls turning negative, large downward revisions, slowing wage growth and a lower unemployment rate driven by workers dropping out of the labour force. 

• Payrolls fell by 23,000 in July (versus +80,000 consensus) with the prior two months also revised down by 103,000. 
• Despite this, the unemployment rate fell to 4.1% (from 4.2%) as the labour participation rate declined, suggesting workers preferred to leave the labour force than look for another job, sending a negative signal about worker sentiment and labour market conditions. 
• Average hourly earnings grew by just 0.1% month/month (versus consensus +0.3%) and slowed to +3.2% year/year, suggesting that the labour market is not a source of inflationary pressure.

Productivity accelerated faster than expected to 4.9% year/year in 2Q26, but with meaningful divergence between labour and non-labour components. Output per hour was 2.2% higher year/year. 

• Unit labour cost growth came in at +1.4% year/year for 2Q26, significantly below the pre-pandemic average when inflation was broadly at target. This is important when combined with declining labour share which suggests labour cost pressures are easing more quickly and are consistent with lower inflation. 
• Conversely, non-unit labour payments accelerated to 9% year/year, likely reflecting higher tariffs, energy prices and AI costs, which are more transitory in nature. 

While labour markets are looking softer, activity in the US remains resilient.

The manufacturing ISM increased to 55.6 in July, the highest level since 2022 and showing signs of the AI tailwind coming from strong equity investment, durable orders and imports of electronic equipment. 

New orders and production were strong, and employment was also >50. 

ISM services however showed a decline in the employment subcomponent, consistent with weak services hiring in the jobs report.

The market is now pricing less than two hikes, with cuts to start by mid to late CY27. 

The combination of softer jobs, subdued wage growth and unit labour costs along with productivity data suggests that the labour market is not currently a source of inflationary pressures. 

We await CPI this week, which should be a critical read for the path of monetary policy moving forward. 

Market positioning

In contrast to last month, hedge funds were modest net sellers on an aggregate prime brokerage basis, driven by short sales outpacing long buys in macro products, while single-stock net flows finished flat.

Sector leadership reversed sharply. Information Technology was the only one of 11 sectors not to re-gross and ranked among the most net sold, as crowded semiconductor longs came under pressure (e.g. Western Digital fell 20%; Seagate fell 5%).

Conversely, well-received software and internet results triggered short squeezes, with Atlassian up 48% and Twilio up 22%, while hyperscalers extended their advance, prompting debate over whether the AI trade can broaden beyond the chipmakers. 

US Positioning data pointed to a renewed but selective appetite for risk rather than a wholesale return to leverage.

Single-stock gross flow was the largest in seven weeks (a clear re-grossing after recent de-grossing) with 10 of 11 sectors adding exposure.

Even so, gross leverage fell 3.9 points to 204.2%, its 6th percentile over the past year, while net leverage rose only modestly to 53.6%, leaving hedge fund books cleaner and lighter than they have been for some time.

Within Financials, net bought for a fourth week, funds continued rotating out of banks and into capital markets, exchanges and payment processors, on the view that anticipated strength in bank earnings is already in valuations.

That cleaner positioning matters locally because it removes the momentum-unwind risk that dragged crowded global longs over the prior fortnight.

Single-stock dispersion is elevated, and index correlation is near record lows, which should be a positive environment for active managers.

Software

As the 2Q reporting season draws to a close in the US, Software & Services has emerged as one of the best performing sectors and one of only two groups to have net EPS beats (+40%), no misses and net EPS upgrades (+33%). 

Concerns that AI spend would cannibalise software did not appear to play out through 2Q26 earnings in the US with solid revenue growth trends across a variety of players. 

For example,

• Datadog accelerated revenue growth from non-AI customers to high-20s from mid-20s last quarter and 18% a year ago. 
• Cloudflare revenue grew 26% and they reported the fastest new-customer bookings and pipeline generation in over five years. 
• Twilio accelerated organic growth to 17% while also accelerating gross profit growth to 18%.

The software rotation reads positively for local names and the “AI as a tailwind to software” pivot is supportive for Xero, Technology One and Wisetech. But it remains important that these companies deliver positive earnings with any misses potentially interpreted as supporting the AI disruption thesis. 

Commodities

The precious metals complex rallied, with silver up 10.5% and gold up 7.2%, as a dovish Fed, yen intervention (serving as a debasement signal) and a crude pullback prompted a rebuild of length across ETFs, futures and options. 

US critical-materials protectionism also broadened, with a 12-month ban on battery black-mass and tungsten-scrap exports adding to the strategic-materials bid that underpins names like Lynas Rare Earths.   

For gold specifically, central bank purchases have supported a base at $4,000 and during the week China buyers reengaged. 

Crude was the week’s most volatile complex, whipsawed by conflicting Iran signals.

Prices gapped lower Monday after US President Donald Trump paused a strike and flagged fresh talks, then fell further mid-week when Treasury Secretary Scott Bessent said a Strait of Hormuz deal could land within days, pushing Brent below US$79.

The optimism proved premature: Iran denied direct talks and published a draft plan with restrictive transit conditions, warning any deal would not fully reopen the strait — effectively closed since the conflict began, choking roughly a fifth of global energy flows.

Crude reversed higher on the walk-back but still ended the week down around 8%. 

Managers net sold US energy for the first time in eight weeks. For Australian equities, we saw this play through in strong performance for the local gold names and weakness in energy. 

Markets

The Korean KOSPI continued its decline, down 5.1% for the week and -26% QTD, leading to fading fears of a “bubble” in the AI trade. 

This should be constructive for markets overall as well as the durability of the AI trade, although heightened focus on returns from AI investment should remain a theme for some time to come. 

In Australia, the S&P/ASX 200 rallied over the last week on a broad risk-on pivot, supported by reported progress on the Strait of Hormuz, strength in US technology names flowing through to local growth-oriented IT, and a softer US dollar underpinning Materials.

Factor performance turned sharply pro-cyclical, with high volatility the dominant signal as high-beta names led and low volatility posting the weakest reading on the board — a clean reversal of last month’s defensive bias.

Growth, price momentum and smaller-capitalisation stocks all outperformed, while the defensive value factors, dividend yield and book yield, reversed hard.

Quality also outperformed, though notably through profitability measures such as return on equity rather than capital return, suggesting the move was anchored to fundamentals rather than sentiment alone.

Nine of the top 10 performing stocks last week were resources related, with only small relative moves so far from companies that have reported.

Reporting season kicked off last week with AMP and Light & Wonder the best of the bunch.  

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About Elise McKay and Pendal Australian share funds

Elise is an investment analyst and portfolio manager with Pendal’s Australian equities team. Elise previously worked as an investment analyst for US fund manager Cartica where she covered a variety of emerging market companies.

She has also worked in investment banking and corporate finance at JP Morgan and Ernst & Young.

Pendal Horizon Sustainable Australian Share Fund is a concentrated portfolio aligned with the transition to a more sustainable, future economy.

Pendal Focus Australian Share Fund is a high-conviction equity fund with a 16-year track record of strong performance in a range of market conditions. The Fund is rated at the highest level by Lonsec, Morningstar and Zenith.

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

Improved political stability and growth-focused policies are strengthening Latin America’s investment outlook. Pendal’s Emerging Markets team explains why this matters now and what it means for portfolios.

Emerging markets – key insights:

• Market-friendly governments are lifting investor confidence
• Fiscal discipline could support growth and returns
• Learn more about Pendal Global Emerging Markets Opportunities Fund

What’s driving the shift in Latin American emerging markets?

THE political backdrop across the Andean region has improved materially over the past year, with direct implications for emerging markets.

Chile led the shift with the election of a conservative government in late 2025, marking a move towards greater emphasis on economic growth, investment and public security.

Peru’s June 2026 presidential election returned a more market-friendly administration following years of political instability and repeated changes of leadership, although the narrow result suggests governance challenges will remain.

Days later, Colombia’s June 2026 election brought a more conservative president who has already appointed a finance minister focused on restoring fiscal credibility after several years of expansionary fiscal policy.

While the pace of reform is likely to differ across countries, all three have moved towards governments placing greater emphasis on macroeconomic stability, private investment and investor confidence.

As top-down country-focused investors, we believe political turning points can precede changes in economic fundamentals and equity market performance.

The Macroeconomic outlook for emerging markets

For capital markets, what matters most is not ideology, but the investment environment it creates.

Long-duration mining, energy and infrastructure projects require confidence in regulation, taxation and licensing.

A more predictable policy framework should encourage capital investment, strengthen export capacity and, over time, support broader economic growth through stronger currencies and higher employment, incomes and domestic demand.

The macroeconomic backdrop should improve, albeit gradually.

Loose fiscal policy under previous administrations contributed to a relatively hawkish monetary stance across much of the region.

If governments can re-establish greater fiscal discipline, central banks should be able to ease monetary policy; together with stronger private investment, this should support domestic demand.

Risks: Why success isn’t guaranteed

Success is not guaranteed. Peru continues to face weak political institutions and deep polarisation.

Colombia’s fragmented Congress means coalition building will remain essential for meaningful reform.

Chile retains stronger institutional foundations than its peers but translating legislative reform into higher investment and faster growth will inevitably take time.

What it means for emerging markets investors

Overall, we believe the direction of travel has become more supportive for investors across the Andean region.

We currently have no exposure to Peru, Colombia or Chile, but we continue to monitor developments across the region for future opportunities as we believe these trends are supportive of the broader Latin American investment backdrop.

The outlook will ultimately hinge on the outcome of Brazil’s presidential election in October, the implications of which we will explore in a subsequent report.

Frequently asked questions

• Why are emerging markets in Latin America attractive in 2026?

Market-friendly governments in Chile, Peru and Colombia are prioritising fiscal discipline and private investment, improving the investment outlook for the region.

• Which Latin American countries elected market-friendly governments?

Chile elected a conservative government in late 2025 followed by Peru and Colombia in June 2026. Brazil’s presidential election is due October 2026.

• How can investors access emerging markets?

Investors can gain exposure through actively managed strategies such as the Pendal Global Emerging Markets Opportunities Fund, which invests across a broad range of global emerging market shares.

About Pendal Global Emerging Markets Opportunities Fund

James Syme, Paul Wimborne, Ada Chan and Roshni Bolton 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