The Trump administration is having a major impact on the emerging markets asset class. Here, Pendal’s Global Emerging Markets Opportunities team outline the latest trends
- Mexico outperformed after US election
- We remain cautious on and underweight India
- Find out about Pendal Global Emerging Markets Opportunities fund
IT’S been four months since the election of Donald Trump confirmed a dramatic shift in US economics and foreign policy – bringing major implications for emerging markets.
The benchmark MSCI Emerging markets Index fell 1.6% in the four months between election day and March 5, underperforming global equities.
The MSCI All Country World Index (which measures both developed and emerging markets) returned 2.7% over that time and the MSCI USA gained 1.5%. (These are total returns in US dollars).
However, the headline numbers mask several major trends.
Emerging markets investors need to look deeper into the data to see which markets and sectors are winning and losing, along with more recent year-to-date trends.
High performers
The two emerging markets most exposed to the new policy environment in Washington (particularly regarding trade tariffs) outperformed in the four months after Trump’s election.
MSCI Mexico returned 3.1% and MSCI China gained 9.5%.
MSCI Brazil was down 8.5% with increased concerns about interest rate hikes. But many other traditionally higher-risk markets – including Turkey and smaller Latin American markets – were up.
The Pendal Global Emerging Markets Opportunities portfolio has been overweight Mexico, China and Brazil in the period.
Although the portfolio does not have direct exposure to the smaller Latin American markets, there is substantial economic exposure held through Brazilian consumer names.
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Pendal Global Emerging Markets Opportunities Fund
India and high-tech EMs struggle
Many markets that struggled last year have been doing well. But what about the losers?
Notably, MSCI India fell 12.2% over the four months, despite limited trade exposure to the US and a good political relationship with the new administration.
A sense that the recent economic boom in India is losing steam and high valuations may not be sustainable is leading to increased caution among Indian investors.
We remain cautious on India and heavily underweight.
Similarly, the technology growth stories that dominated headlines last year are weakening.
MSCI Taiwan was down 4.2% and MSCI Korea lost 7% (Korea had a major domestic political crisis in the period).
After a long period of outperformance, the MSCI Information Technology index underperformed, dropping 3%.
MSCI Malaysia (-4.8%) and MSCI Thailand (-18.3%) were also exposed to technology exports and underperformed.
We continue to be underweight Taiwan and Korea (and Information technology) and zero-weight Malaysia and Thailand.
Trends point to strong EM market
Looking beyond the headline numbers, the deeper trends suggest an exciting story for emerging markets.
Every Latin American market had a positive return in US dollars in the four months after Trump’s election.
MSCI Mexico gained 8.7%, MSCI Brazil was up 7.6%, while MSCI South Africa (an overweight in our portfolio) returned 9.6%.
MSCI China returned 16.4% and MSCI EM as a whole was up 4%.
Improved growth prospects in China and the historically riskier parts of the asset class attracted investor interest as uncertainty grew about where the pain of tariffs would ultimately be felt.
These positive returns stand in contrast to a negative year-to-date return from MSCI US; MSCI US Growth retreated 3.9%.
These trends are new and, so far, short term.
There is a traditional English saying, “one swallow doesn’t make a summer” – and the global economic and political environment remains volatile.
But if we were asked what an EM bull market looks like, we would say that it looks like this.
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.
The Philippines is on a growth trajectory, but looming deficits raise concerns about its sustainability. Pendal’s Emerging Markets team explains why it has zero-weighted the region
- Loose fiscal policies have left the country vulnerable
- The sustainability of growth remains low
- Find out about Pendal Global Emerging Markets Opportunities fund
INVESTORS who follow Pendal’s emerging markets process know the team believes in buying equity for growth — and emerging markets for growth.
This means we focus on the economic growth environment and how that impacts revenue and earnings growth for listed companies.
It also means we focus on the sustainability of growth.
With this in mind, some investors may find it interesting that we remain zero-weighted in the Philippines.
Throughout 2023-24, the country’s GDP growth averaged 5.6% in 2023-24, which is higher than in Indonesia at 5.1%, where we are invested.
Annualised earnings growth for those two years was 12.7% — comparable to other strong growth stories we have been invested in: the United Arab Emirates (+13.6%) and India (+12.4%).
Yet, the Philippines doesn’t make it into our investment picture. Below we explain why.
A quick recap
To explain our view, let’s take a quick trip through recent economic and political history.
Although not hit as dramatically as Indonesia or Thailand during the 1997 Asian Crisis, the Philippines still suffered a collapse in its currency and stock market.
Similar to other countries in the region, this proved to be the trigger for economic reforms that drove strong growth in the 2000s.
Despite the Global Financial Crisis, the presidencies of Gloria Macapagal-Arroyo (2001-2010) and Benigno Aquino (2010-2016) saw GDP growth average 5.4%.
Crucially, the quality of this growth was high, with account surpluses from 2004 to 2016 and a fiscal deficit of around 2% for this period.
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Pendal Global Emerging Markets Opportunities Fund
The rise of populist politics in the mid-2010s affected the Philippines, leading to the election of Rodrigo Duterte in 2016.
Though his government’s economic policies contained numerous reforms — including liberalising foreign investments — he also cut taxes while increasing government spending.
This was positive for growth (GDP growth averaged 6.6% from 2016-2019) but came with several costs.
The first was inflation. The Philippines CPI increased from 2.1% in 2016 to a peak of 6.9% in late 2018.
The second was the fiscal balance, which steadily worsened from 2017 to 2019, reaching a deficit of 3.4% of GDP that year.
The third was the current account balance. As imports were sucked in by strong domestic demand, the current account moved into deficit in 2017 and remained there til 2019.
Then COVID hit.
The global pandemic arrived with President Duterte not yet four years into his six-year term. Given the pre-pandemic focus of his government, a robust fiscal response was always the likely outcome.
The government borrowed heavily to fund pandemic relief efforts, pushing the government debt-to-GDP ratio from 39.6% in 2019 to 60.5% in 2021.
The budget deficit widened to 7.6% of GDP in 2021, up from 3.4% in 2019.
This helped turn round a deep recession in the Philippine economy and was undoubtedly crucial to many Philippine citizens.
Despite the end of the pandemic, fiscal policy settings have remained extremely loose.
The Duterte administration was followed by the current incumbent, President Ferdinand Marcos Jr, who seeks economic stabilisation (including stabilising government debt/ GDP), and a focus on controlling inflation.
That has not returned the fiscal and current account balances to pre-COVID levels, let alone pre-Duterte levels.
The latest data points show a fiscal deficit of 5.8% of GDP and a current account deficit of 3% of GDP (both in 3Q 2024).
Inflation remains benign, as excess capacity in the economy post-COVID is being consumed. But this is fundamentally an unsustainable policy setting.
GDP growth (5.2% in 4Q 2024) remains high but is vulnerable to what will have to be either a sharp tightening of fiscal policy, real weakness in the Philippine Peso, or both.
In that light, the strong earnings growth from Philippine companies is, in our view, being juiced by twin deficits that cannot continue indefinitely.
We remain zero weight in the Philippines and prefer equity markets with growth in countries with stronger fundamentals.
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.
Takeaways from national accounts | A decisive, active approach to fixed income | Savage response to earnings misses | Investing in founder-led companies
While there’s hope for Australia’s GDP, we may be ‘running to stand still’ unless productivity starts improving, warns Pendal’s head of government bonds TIM HEXT
- Watch now, on demand: How to prepare for rate cuts in a shifting global economy
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IT’S been five years this week since the Covid chaos emerged.
Aftershocks have kept rolling in since then. But is the Australian economy finally starting to look more “normal”?
The latest set of Australian national accounts (see below) shows Gross Domestic Product growth at 0.6% for the December quarter, suggesting that conditions may, indeed, be moving closer to normal.
Why is that? Below are three takeaways from the latest data.
- The consumer is back, but still cautious
The consumer is finally emerging, albeit tentatively, as a positive impact on the economy.
Household consumption grew by 0.4%, contributing 0.2% to the 0.6% overall GDP growth. The contribution had been near zero over the previous year.
Consumers finally had positive real wages growth in 2024 (3.2% wage growth versus 2.5% inflation).
Consumers also spent some of the Stage 3 tax cuts since July. We estimate that around 25% was spent and 75% saved, helping the savings rate to climb to 3.8% from below 3% a year ago.
- Governments are still a large driver of GDP. Will they pull back further to make room for the consumer?
Government consumption grew by 0.7% in Q4, driven largely by the states. This is at least moderating from near 1.5% growth a quarter earlier.
Government investment also moderated but remains high at 1.8% over the quarter. Overall, the public sector contributed 0.2% to the 0.6% growth.
The government needs to keep moderating spending and investment if the re-emerging consumer is to avoid causing inflationary pressures.
In many areas of the economy, the private and public sectors compete for supply of labour, capital and goods.
- Private investment remains weak, adding to poor productivity
Private investment rose only by 0.3% in the quarter. Business investment is showing some signs of life, but dwelling investment is falling — not helped by high rates.
There are, as always, different stories in different sectors. But the overall picture is productivity continuing to flat-line.
GDP per hour worked fell again and is 1.2% lower over the year.
The focus on Australia’s poor productivity is becoming a bigger issue.
Everyone has their reasons for it and different lobby groups will shift blame, promoting their own solutions (which normally involve government hand-outs).
However, I did come across the graph below courtesy of Minack Advisors.
Put simply, as our capital-to-labour ratio has fallen, so has labour productivity.
Net investment to GDP is around the lows of the past 50 years against labour force growth at the highs (courtesy of immigration and participation).
Overall, the latest today’s national accounts report offers some hope of GDP moving back to the 2% to 2.5% the RBA is looking for.
However, unless we can start improving productivity, we will be running to stand still.
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
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.
Here are the main factors driving the ASX this week according to portfolio manager JIM TAYLOR. Reported by investment specialist Jonathan Choong
RECENT themes continue, with equity market rotation out of the best performers, weakness in the speculative end of the investment landscape (eg Bitcoin), and ongoing effects of policy uncertainty under Trump 2.0.
The S&P/ASX 300 fell -1.3% while the S&P 500 was off -1.0%.
KPMG chief economist Diane Swonk probably summed it up best. “We’re all sitting here trying to filter through the noise to the economic reality,” she said. “But the noise itself has its own economic consequences.”
Last week perhaps saw some early indications of this economic impact across both the consumer and business segments in the US.
- On the consumer side we saw very weak sentiment measures, spending data and a tick up in jobless claims.
- On the business front we have seen capex intentions slipping and a surge in imports as businesses look to front-run tariffs set to commence from March 4th.
The net effect was a big rally in bonds – with US ten-year yields dropping 23bps to 4.19% – which reflects increased uncertainty around growth rather than a material change in rate cut expectations.
For their part, the Fed has kept a consistent line about rates remaining on hold until some of the policy settings become clearer, but still with the prospects of some cuts at the back-end of the year.
Notwithstanding all the macro noise, the second of the two main weeks of Australian reporting season was the key driver of moves within the local market.
There were plenty of hits and misses, with increased levels of volatility around results driving some big moves within the market.
We are seeing companies place a greater focus on the language used in their releases, given the influence of systematic strategies that use earnings releases as an input.
The savage reaction to earnings misses is also driving corporate Australia to be much more proactive in cost-cutting to support earnings. They are also more constructive on share buybacks as a mechanism to support the stock in increasingly volatile times.
Macro and policy Australia
Headline January consumer price index (CPI) inflation came in at -0.2% month-on-month and up 2.5% year on year, the latter unchanged from December and a touch below consensus expectations of 2.6%.
Seasonally adjusted, it ticked up 2.7%.
The RBA’s preferred trimmed-mean measure rose from 2.7% year-on-year in December to 2.8% in January. The reading excluding volatile items was 2.9% year-on-year, up from 2.7% in December.
An increase in inflation in food (+3.3%) and clothing (+2.1%) were major contributors. So too was a reduction in the effect of electricity (-11.5% versus -17.5% in December as some subsidies start to roll off.
Key housing-related categories such as rents (+0.3% month-on-month) and new dwelling prices (-0.1% month-on-month) are showing further disinflation, which is a good sign for the Q1 CPI print.
Both the headline and trimmed-mean year-on-year CPI rates are within the RBA’s 2-3% band – as are the majority of items in the CPI basket, although the latter ratio has flat-lined in recent months.
Macro and policy US – policy uncertainty manifesting in the data
Fedspeak
The Federal Reserve Bank of Atlanta’s President Raphael Bostic said the Fed should hold interest rates where they are, at a level that continues to put downward pressure on inflation. This is in contrast to his comments a week ago when he said that another two cuts would be appropriate.
Jeffrey Schmid, President of the Kansas City Fed, noted that inflation has been just recently at a 40-year high and that “now is not the time to let down our guard,” saying that inflation risks have to be balanced with growth concerns.
February Conference Board data
February’s Conference Board consumer confidence index fell to 98.3 from 105.3 in January. This was well below consensus expectations of 102.5 and was the weakest reading since August 2021.
Consumer confidence appears to have fallen sharply in the face of threats to impose large tariffs and to slash federal spending and employment.
The Conference Board expectations index – which is most relevant for spending growth – weakened to an eight-month low of 72.9 and is consistent with year-over-year growth in real consumption of about 2%, down markedly from 4.2% in Q4 2024.
The weakness of confidence strongly suggests that recent rapid growth in spending on durable goods mostly reflects households pre-empting tariffs.
The Fed keeps a keen eye on the Conference Board consumer inflation expectations series and may have been concerned by a further increase in median one-year ahead inflation expectations, from 4.2% in January to 4.8% in February. This is well above the 4.3% average reading from the years 2000 to 2019.
Mean inflation expectations leapt to 6.0%, from 5.2%, indicating that some individuals now expect extremely high inflation.
The key risk is contagion from these expectations into wage setting outcomes. The weakening environment for labour probably provides some weight against this – but it will be very closely watched over the next six-to-twelve months.
In this vein, the proportion of people saying that jobs are plentiful fell to 33.4% in February, from 33.9% in January, while the share saying they are hard to get increased to 16.3%, from 14.5%.
In addition, the proportion of people expecting fewer jobs to be available in twelve month’s time exceeded those expecting more jobs by 8 percentage points, the joint-largest gap since November 2013.
Other data
Real consumption expenditures fell by 0.5% in January, much weaker than the -0.1% expected. The drop was driven by the reduction in vehicle purchases, post the surge in people buying replacement autos following recent hurricanes.
Nominal personal incomes rose 0.9%, well ahead of consensus expectations of 0.4%. However this was driven by government transfers, an effect not expected to be sustained.
The Core PCE deflator rose 0.3% in January, as expected. This reduced the annual inflation rate to 2.6%, which is down from 2.9% in December and is the lowest since March 2021.
The trend here is your friend – with expectations that the path of decline toward 2% is reasonably entrenched, save for the huge caveat being how the tariffs play out.
If China gets an additional 10% and the 25% tariffs on Canada and Mexico hold then it probably impacts Core PCE by about 0.5% and keeps the number in the mid-to-high 2.0% to 3.0% range.
Elsewhere, the NFIB measure of capex intentions has seen a pullback, suggesting businesses are increasingly nervous around tariffs and inflation and reining in spending intentions.
On the employment front, weekly initial jobless claims rose to 242K, up from 220K and above the 221k consensus. Continuing claims fell to 1,862K from 1,867K, slightly below the consensus of 1,871K.
Higher jobless claims appears the result of extreme weather rather than the efforts of DOGE.
Washington, Virginia, Maryland have around 5% of the US population but 20% of the Federal government workforce and the data from these regions were marginally (~2k) above recent data points.
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Crispin Murray’s Pendal Focus Australian Share Fund
Total Federal government-dependent employment – excluding military and postal workers – probably stands at about 9.5 million workers, which is about 6% of total payrolls.
Finally, we note that the net trade balance is going to be a very large drag on US growth amid a pre-tariff surge in imports.
The goods trade deficit surged to US$153.3bn in January, miles ahead of December’s US$122.0bn deficit – which had itself been a record – and well above the US$116.6bn consensus expected.
Exports rose by 2.0% – so the blow-out is entirely the outcome of an 11.9% surge in imports.
All the major import categories rose, but around two-thirds of the surge resulted from a 32.7% increase in industrial supplies. That category is almost 70% above its October level.
This is showing up in the Atlanta Fed GDPNow measure, where expectations of Q1 GDP growth plunged from 2.3% on 19 February to -1.5% on 28 February as a result of the net export and personal consumption expenditures data.
Macro and policy rest of the world
There are reports that China is planning to inject at least US$55 billion into three of its biggest banks.
This could apparently be completed as soon as June and builds on the stimulus package unveiled in 2024.
In Europe, France is destroying its industrial base with over taxation, according to Michelin CEO Florent Menegaux.
“You’re economically killing your country when you’re imposing taxes much higher than in other countries,” he said. “Right now, the direct and indirect taxation in France is the highest in Europe. Don’t expect corporations to be able to swallow that all the time”.
Higher taxes and the drop in auto demand across Europe has forced Michelin to shut down three plants in Germany, two in France and one in Poland.
Producing in Europe is twice as expensive as in Asia. “We have to re-adapt our industrial footprint in Europe to export less because it’s not economical,” said Menegaux.
In Germany, the energy regulator is proposing a plan to require around four hundred manufacturers to adjust their operations to match real-time wind and solar supply, in order to keep the grid stable and prevent price spikes.
The plan would force companies to ramp down production during periods without wind or sunshine, and run at full throttle on breezy, bright days, which could help keep a lid on prices but would further add to company cost of production.
Reporting season
The number of companies seeing upgrades versus downgrades for out-years was pretty evenly split.
As a result of revisions, around 1% has been taken from both consensus FY25 and FY26 overall ASX200 profit expectations. Year-on-year EPS growth for the market now sits at -0.7% for FY25, then accelerating to +8.0% for FY26.
The downgrade skew was disproportionately driven by lower-than-expected earnings being factored into some larger-cap names in the Energy, Banks, Health Care and Tech sectors.
There was a step-up in stock price volatility in response to earnings results over recent periods. 40% of stocks that reported moved by more than 5% either way – a level not seen since the second half of FY2019 and well ahead of the ~25% average over reporting seasons going back to FY2007.
This is also reflected in a new high for the ratio of a stock’s earnings day move versus its thirty-day average daily move. This hit 5x, versus an average of 3x in reporting seasons back to FY2007.
Ultimately the ratio of beats to misses remained just in positive territory. 26% of companies beat consensus EPS expectations by 5% or more, versus 24% that missed.
The ASX 100 performed better than the Small Ordinaries in this regard. 23% of ASX 100 companies beat consensus EPS expectations by 5% or more – and 17% missed – while 28% of Small Industrials beat but 28% also missed. 35% of ASX 100 Resources beat and 24% missed, while 23% of Small Resources beat and 38% missed.
Dividends provided decent support; 26% of companies beat DPS by 5% or more, versus 20% that missed.
Changes to guidance were balanced. 15% of ASX 100 companies upgraded guidance, while 15% also downgraded. In Small Industrials, 12% upgraded and 12% downgraded.
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.
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
- Broader equity markets have been weak
- Market technicals don’t yet signal a more material selloff
- Find out about Pendal Focus Australian Share fund
- Tune in: register to watch Crispin’s Beyond the Numbers webinar
THERE has been some concern that the pace of policy actions in the US is creating uncertainty and deferring decisions among businesses and consumers.
This was reinforced by slight weakness in the University of Michigan Consumer Confidence Survey and the US Purchasing Manager’s Index (PMI) last week, as well as guidance from Walmart, which was 8% below consensus expectations.
Walmart pointed to currency headwinds, some pressure from mix shift as consumers “trade down” to cheaper items, and “geopolitical uncertainties” (also code for tariffs). The stock fell 9%.
Broader equity markets were also weaker, though there was no specific catalyst. The S&P 500 fell 1.6% and the S&P/ASX 300 was off 2.8%.
There was interesting rotation within the market, with a big unwind in momentum stocks such as Apollo (-7%), Citi (-6%), Goldman Sachs (-5%), Tesla (-18%) and Palantir (-15%) late in week.
The US Dollar is the other signal to watch; there is a building view that we may have seen the peak in the Dollar Trade-Weighted Index (DXY) for now and have reached “peak US exceptionalism”.
Market technicals look reasonable and are not yet signalling a more material selloff.
Liquidity also remains good, so our current read is that this is more consolidation and rotation as the earnings growth between growth and value converges.
This view is also reinforced by credit spreads remaining tight, as well as strong performance in European (Euro Stoxx 50 up 4% month-to-date) and Asian stock markets (Hang Seng up 16% and KOSPI up 5% month-to-date).
This would be consistent with a turn in the USD.
Australia saw its first rate cut (25 basis points (bps) to 4.1%) since November 2020, ending a 33-month up-cycle. However, the RBA’s message was that the market was too optimistic in expecting three cuts this year.
That hawkish message meant the cut offered no support to the market, while a series of disappointing updates from the banks helped drive the ASX lower.
We have had just over 50% of companies by number reporting.
So far, the results are okay, with nothing suggesting any particular thematic issue. Stock-specifics are the main drivers of reaction.
We also saw M&A activity with the CoStar bid for Domain (DHG).
Australia
The RBA cut its benchmark rate 25bps to 4.1%, the first change since November 2023.
This was seen as a hawkish cut, as the RBA Governor talked down the prospect of further cuts in the next few months – specifically noting that the market’s expectation for three rate cuts in 2025 looks unrealistic.
Governor Bullock did note that the policy was restrictive – though we observe that most corporate trends suggest the underlying economic environment is marginally improving.
When asked about the catalyst for another cut, Governor Bullock noted that she is looking for:
- reduced concerns on an upside surprise in inflation
- easing in wages growth
- disinflation in services
- a sustained reduction in housing inflation
- improvement in the supply side.
The market only marginally shifted down expectations for future rate cuts.
The updated RBA inflation outlook envisages inflation falling into its target range earlier than before, but the expected trough in inflation is now higher at 2.7% versus 2.5% previously.
The forecast for inflation in December 2026 was also increased 20bps.
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US
There was not much in the way of data last week.
Minutes from the Federal Reserve’s most recent meeting reinforced a more cautious outlook for rate cuts.
The University of Michigan Consumer Confidence Survey deteriorated, with the Headline index falling to 64.7 from 71.7 in January.
The consumer expectations component, which is most relevant for spending growth, fell from 69.5 to 64.0.
We do note that the survey measures responses by political affiliation and that the fall has been driven by Democrat and Independent voters, while Republican voters were unchanged.
This survey may signal a weaker consumer, but we wouldn’t read too much into it at this point as other surveys we follow are showing some signs of improvement in February.
Flash PMIs for February were slightly soft. Manufacturing was better at 51.6 versus 51.2 in January, however, Services fell to 49.7 from 52.9.
Overall, the composite PMI fell to a 17-month low.
We may potentially be seeing the impact of Federal job cuts and concerns on tariffs affecting sentiment and deferring employment decisions.
Markets
We saw a material selloff in the US late last week, triggered by Walmart’s guidance being below market, and reinforced by softer consumer confidence data. But the price actions seemed too severe to be explained away by just that, suggesting positioning has become very crowded.
We are seeing selling in tech and consumer discretionary with rotation into cyclicals.
The overall market has been resilient despite all the noise on tariffs, DeepSeek and higher CPI.
Breadth has deteriorated, which suggests less fire power for the market to rise, but this has not fallen to concerning levels (63% of S&P 500 stocks are above their 200-day moving average).
Sentiment indicators such as futures positioning, put/call ratios and bull/bear ratios are relatively balanced now, which is an improvement from the extended positions at the start of the year.
ETF flows remain strong and in their 90th percentile versus history, but are narrowly focused into specific sectors.
Credit spreads are still low and now correcting, which is supportive for equities and highlights that liquidity is fine and there are no fears building around economic deterioration.
There is lots of focus on regarding the US Dollar and talk of a “Mar-a-Lago Accord” – akin to the Plaza Accord from the 1980s – designed to weaken the dollar to help support growth.
This would support liquidity and be broadly positive for markets.
It is clearly apparent that the Yen is strengthening.
Japanese economic growth and inflation data has improved, and this may be correlated with some of the other momentum trades as the Yen has been a funding source.
It also may be a signal that the US 10-year bond yield may be heading lower – there has been strong correlation between them and the Yen in recent years.
From a portfolio perspective, it is important to watch market rotation as an emerging theme, as momentum and growth stocks have been such big market drivers in the last 15 months.
Regions outside the US are beginning to perform better, and lead indicators on European growth are improving (e.g. performance of cyclical versus defensive stocks).
There are also signs of life in China, where the two-year bond yield has begun to move higher.
There has also been a large run in Chinese tech names, triggered first by DeepSeek and subsequently President Xi having a public meeting with key tech entrepreneurs.
There is a view this could be a catalyst for improved sentiment in China.
The key “Two Sessions” annual policy meeting of the National People’s Congress and Chinese People’s Political Consultative Conference will be closely watched in the first week of March.
We remain positive on overall on the market’s direction.
However, the rotation is giving us confidence that we may see some of the more extreme valuation premiums that have characterised the market in the last 12 months unwind.
Australian equities
The S&P/ASX 300 was down 2.8%, due to a combination of the broader global selloff, the hawkish statement from the RBA, negative earnings updates from the banks, an overhang from the Goodman Group capital raise, and a portfolio basket-trade selling Australia.
Financials (-6.9%) – specifically banks (-9.4%) – was the weakest sector as margins trends were worse than expected at National Australia Bank, Westpac, and Bendigo & Adelaide Bank.
Given their extended valuations, this triggered a selloff in the sector – similar to that seen during the late September Chinese stimulus and the August Yen carry trade unwind.
This was more fundamentally driven, with margin trends worse than expected and slightly lower capital ratios, which will limit the degree of capital returns.
The Commonwealth Bank buyback kicks in this week, which may put a floor under the sector short term.
Industrials (-3.3%) was also weak, which is partly tied to the RBA statement.
We are just over the halfway mark of company reporting and earnings beats and misses thus far suggest a benign earnings season.
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.
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We have updated and reissued the Product Disclosure Statements (PDSs) for the Pendal Global Emerging Markets Opportunities Fund (the Fund) effective on and from Thursday, 20 February 2025.
The following is a summary of the key changes reflected in the PDS for the Fund.
Labour, environmental, social and ethical considerations
We have clarified that the investment manager of the Fund, J O Hambro Capital Management Limited (JOHCM), does not have a predetermined view of the environmental, social (including labour standards), corporate governance and ethical factors (ESG factors), but they do assess ESG factors in their investment process and portfolio construction to the extent JOHCM deems those considerations to be material to the financial performance of an investment.
Updates to significant risks disclosure
The Fund’s investment strategy involves specific risks.
We have updated the significant risks disclosure applicable to the Fund to ensure that our disclosure continues to align with the nature and risk profile of the Fund and the current economic and operating environment.
Updates to ongoing annual fees and costs disclosure
The estimated ongoing annual fees and costs for the Fund has 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 and performance fee we are entitled to charge under the Fund’s constitution.
Updates to restrictions on withdrawals
We have updated the disclosure on restrictions on withdrawal to align closer to what is in the Fund’s constitution.
Additional information on how to apply for direct investors
We have provided additional information for non-advised investors (investors without a financial adviser) investing directly in the 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 the Fund.
Updates to our complaints handling process
We have provided additional details about our complaints handling process and the Australian Financial Complaints Authority.
We have updated and reissued the Product Disclosure Statement (PDS) for the Pendal Sustainable Australian Fixed Interest Fund (the Fund) effective on and from Thursday, 20 February 2025.
The following is a summary of the key changes reflected in the PDS for the Fund.
Labour, environmental, social and ethical (ESG) considerations
We have enhanced our ESG disclosure to describe the Fund’s sustainability objective, the sustainable themes Pendal focuses on when managing the Fund, the sustainability assessment employed by the Fund and the benefits associated with the Fund’s approach to ESG.
The way the Fund is managed has not changed.
Exclusionary Screens
We have clarified, the Fund’s exclusionary screens are not applied to government securities, semi-government securities, supranational securities, cash or derivatives. And that the use of derivatives may result in the Fund having indirect exposure to the excluded companies or issuers.
Updates to significant risks disclosure
The Fund’s investment strategy involves specific risks.
We have updated the significant risks disclosure applicable to the Fund to ensure that our disclosure continues to align with the nature and risk profile of the Fund and the current economic and operating environment.
Updates to ongoing annual fees and costs disclosure
The estimated ongoing annual fees and costs for the 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 the Fund’s constitution.
Updates to restrictions on withdrawals
We have updated the disclosure on restrictions on withdrawals to align closer to what is in the Fund’s constitution.
Additional information on how to apply for direct investors
We have provided additional information for non-advised investors (i.e. investors without a financial adviser) investing directly in the 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 the 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 (PFSL) ABN 13 161 249 332 AFSL 431426 and the information is current as at the date of this document. It is general information only and is not intended to provide you with financial advice or take into account your personal objectives, financial situation or needs. You should consider whether the information is suitable for your circumstances and we recommend that you seek professional advice.
The product disclosure statement (PDS) for the Pendal Sustainable Australian Fixed Interest Fund (ARSN 612 664 730) (Fund) is issued by PFSL. PFSL is the responsible entity of, and issuer of units in, the Fund. You should consider the PDS before deciding whether to acquire, dispose, or hold units in the Fund. The PDS and Target Market Determination for the Fund can be obtained by visiting www.pendalgroup.com.
To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. Neither PFSL nor any company in the Perpetual Group (Perpetual Limited ABN 86 000 431 827 and its subsidiaries) guarantees the performance of the Fund or the return of an investor’s capital. All investing involves risk including the possible loss of principal.
We have updated and reissued the Product Disclosure Statement (PDS) for the Pendal MicroCap Opportunities Fund (the Fund) effective on and from Thursday, 20 February 2025.
The following is a summary of the key changes reflected in the PDS for the Fund.
Updates to significant risks disclosure
The Fund’s investment strategy involves specific risks.
We have updated the significant risks disclosure applicable to the Fund to ensure that our disclosure continues to align with the nature and risk profile of the Fund and the current economic and operating environment.
Updates to ongoing annual fees and costs disclosure
The estimated ongoing annual fees and costs for the 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 performance fee and management fee we are entitled to charge under the Fund’s constitution.
Updates to restrictions on withdrawals
We have updated the disclosure on restrictions on withdrawals to align closer to what is in the Fund’s constitution.
Additional information on how to apply for direct investors
We have provided additional information for non-advised investors (i.e. investors without a financial adviser) investing directly in the Fund.
If you are a non-advised investor investing directly in the Fund, you will need to request an Application Form by completing a form at www.pendalgroup.com. An issuer representation will contact you, and you will be required to complete a series of questions to assist us in understanding whether you are likely to be within the target market for the Fund. An Application Form will only be issued if you are assessed as being likely to be in the target market for the Fund,
Updates to our complaints handling process
We have provided additional details about our complaints handling process and the Australian Financial Complaints Authority.