With more than half of global GDP reliant on healthy ecosystems, biodiversity is fast emerging as a critical lens for long-term sustainable investing.

• Biodiversity underpins over half global GDP, shaping investment
• World Bank bond funds conservation and sustainable livelihoods
• Find out more about Pendal’s Responsible Investing capabilities 

Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund invested in an AUD Biodiversity and Sustainable Development bond from the World Bank.

More than half the world’s GDP is estimated to be dependent on biodiversity and ecosystem services.

Fresh water, fertile soils, clean air and even insects pollinating plants – the flow-on effects of the degradation of biodiversity are immense.

Biodiversity is emerging as an investment focus, coinciding with businesses increasingly disclosing the different environmental risks they face.

This bond is helping to position nature as central to development through promoting conservation, training, and policy to seek nature-based solutions in agriculture, forestry and fisheries.

Through this bond, the Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund are investing in projects around the world that are promoting biodiversity, including by providing training and opportunities to manage resources. 

The World Bank lists examples of projects that may be funded by bonds like this. One example looks at oases in Tunisia.

Oases, which has long been the centre of trade and cultural exchange, are threatened from water wastage, soil salinity and fertility loss.

Local knowledge about how to manage these resources is being lost.

The World Bank project is funding improved governance of these spaces by improving water saving and reducing land degradation.

This project will place 25,000 hectares under sustainable landscape management practices, providing financial support for 250 small and medium enterprises. 

Another example of a project that is relevant to a biodiversity bond is in Mexico.

There are 12 million people in Mexico who live in poverty in forests and are directly dependent on local natural resources.

This project is helping to strengthen sustainable forest management and provide other economic opportunities.

This includes conservation and business development and providing other economic opportunities apart from logging and land clearing.

This project places a particular focus on the underserved such as indigenous people and women.

Pendal’s investment in the Asian Development Bank’s gender bond helps accelerate gender equality across the Asia-Pacific while keeping credit exposure anchored to a AAA-rated supranational issuer.

• Gender bond funds Asia-Pacific gender equality
• Targets women’s financial inclusion, improving access to credit
• Find out more about Pendal’s Responsible Investing capabilities 

Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund invested in a sustainable bond from the Asian Development Bank (ADB) called a gender bond.

These bonds are issued in Australian dollars, and we have no exposure to any project level credit risk.

Our exposure is solely to the AAA rated ADB, a multilateral development bank established in 1966 and owned by 69 member countries[1] across the Asia Pacific region.

The ADB exists to promote inclusive, resilient, and sustainable development, and one of its core priorities is accelerating progress on gender equality.

The Asia Pacific region still experiences some of the widest gaps between women and men across economic participation[2], financial inclusion, education access, and leadership representation.

ADB’s work recognises that closing these gaps is crucial for improving economic productivity and supporting long-term social stability.

These bonds with their specific focus on gender allow investors to contribute to these goals while maintaining exposure to a high-quality supranational credit.

An example of the type of project that these gender bonds support is the Uzbekistan Inclusive Finance Sector Development Program[3].

This program aims to expand access to finance for underserved micro and small entrepreneurs, particularly women-led businesses, by strengthening the regulatory environment, improving consumer protection, and enabling new microfinance institutions to operate sustainably.

Uzbekistan has made progress in broadening financial inclusion and around 60 per cent[4] of adults now hold a financial account, driven in part by rapid growth in digital finance.

However, women entrepreneurs still face significant barriers in accessing credit.

ADB’s program supports targeted reforms such as increasing the ceiling for microloans, developing responsible lending guidelines, and establishing gender-focused lending quotas to help narrow these gaps and improve opportunities for women to participate in economic life.

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[1] https://www.adb.org/who-we-are/about

[2] Economic and leadership gaps: constraining growth and skewing transitions – Global Gender Gap Report 2024 | World Economic Forum

[3] 57245-001: Inclusive Finance Sector Development Program Subprogram 1 | Asian Development Bank

[4] ADB Program to Boost Financial Development and Inclusion in Uzbekistan | Asian Development Bank

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Industry super funds are under increasing pressure from the government to provide more products enabling them to service members beyond retirement. Pendal’s BRENTON SAUNDERS discusses the changes and the midcaps set to benefit

• Super funds pushed to improve retirement drawdowns
• Global companies circling Australia’s annuity market
• Find out more about the Pendal MidCap fund

RETIREES could see a wave of new retirement products hit the market from mid-year, as APRA resets capital requirements for decumulation products, like annuities — a change expected to lower barriers for providers and encourage large overseas insurers to compete in Australia.

The shift comes as the government increases pressure on super funds to help members spend down balances in retirement, rather than die with “fully stacked” accounts.

“The problem the government has is that a lot of people, when they pass, their super funds balances are still high, and they haven’t really used that money over time and effectively decumulated,” explains Brenton Saunders, portfolio manager for Pendal MidCap Fund.

“A big part of the reason is that there are very few easy to understand and effective decumulation products out there.”

An annuity is one of these types of products. It is a financial contract with an insurance company that provides a guaranteed income stream, either immediately or in the future, often used for retirement planning.

However, Saunders says up until now annuities haven’t been particularly popular in Australia due to a complicated administrative process and limited availability.

Challenger (ASX:CGF) is one of the only Australian investment management companies that currently offers annuities.

“The Australian framework historically has required a much more capital-intensive approach to annuities because capital adequacy requirements were higher,” says Saunders.  

“So it’s never really attracted a lot of the big global annuity players into the market to facilitate mass development of products.”

What’s changing

APRA finalised its review at the end of March with the amendments set to come into effect from 1 July 2026.

The amendments are designed to make annuities less capital-intensive to write, potentially widening the limited provider pool and attracting new entrants to the market

At the same time, Challenger is investing in technology to make annuities easier to quote, implement and service through advisers and super funds.

“Challenger will also partner with industry super funds to provide them with products that they can then pass on to their members,” adds Saunders.

“It’s a big opportunity for Challenger specifically, but what will happen is – and what we’re seeing happen now – is other participants from Japan and the US are entering the annuity market.

“So, it’ll become quite a vibrant landscape.

“I suspect in time companies like Challenger, given that they’re much smaller than the big global annuity providers, could be acquired by these bigger companies.”

Why it matters for retirees

If more insurers enter and super funds expand retirement offerings, retirees may have more ways to convert part of their balance into a predictable “pay cheque”.

“Companies like financial services business Generation Development Group (ASX:GDG) and AMP (ASX:AMP) have launched products that are more market-linked than annuity based, but are very tax efficient and getting a lot of traction with the retirement market,” says Saunders.

Evolution of SMSFs

Over the past decade, there has also been an evolution of self-managed super funds.

“The superannuation industry is growing incredibly fast. We’ve had super contributions as individuals increase a couple of times over the last five years, and with strong markets we’ve also had super balances grow materially over the last five or six years,” says Saunders.

Saunders says two offerings have been gaining share with “tech ready,” attractively priced and well serviced platforms; Netwealth Group (ASX:NWL) and Hub24 (ASX:HUB).

“That all manifests in these platforms, and notably Hub and Netwealth have been big beneficiaries of that.

“We back them to continue taking market share in the platform market from industry superannuation funds on the one hand, and from the incumbent platforms on the other.”

Pendal MidCap Fund owns a position in CGF, GDG, AMP, NWL and HUB.

Here are the main factors driving the ASX this week, according to Pendal’s ANTHONY MORAN. Reported by portfolio specialist Chris Adams

• Find out about Pendal Focus Australian Share fund

US equity markets are rallying on strong earnings and “good-enough” economic data, while the ASX is lagging due to lower exposure to tech/AI and greater weight in resources and banks – which had a breather last week.

The S&P 500 gained 0.92%, the NASDAQ +1.1% and the small cap Russell 2000 +0.9% last week. The S&P/ASX 300 finished down 0.7%.

Brent and West Texas Intermediate oil both put on around US$10/barrel over the week with no progress on Iran.

We remain in a limbo period where existing inventories and demand destruction are preventing things from getting out of hand – but it’s only a matter of time before this changes.

US reporting season was generally positive and highlights a resilient consumer.

Several big tech companies reported last week, providing a positive backdrop with revenue generally ahead of consensus and increases to AI-related capex.

The Australian economy remains resilient. Last week’s Q1 consumer price index was high but in line with expectations, affirming the need for further rate rises.

Indications are that Australian consumers also remain resilient for now.

Markets appear to be marking time until the global economy starts slowing more materially.

US macro and policy

Rates

The US Fed held rates steady as expected but delivered some hawkish takeaways.

• Four out of 12 governors dissented – the most since 1992. Three of the four wanted to remove the inclusion of an easing bias in the statement. Chair Jay Powell noted there was a “vigorous debate” over the inclusion of the statement and it could be removed next meeting. Stephen Miran provided his customary vote for a rate cut.
• Powell said the bar for “looking through” the oil shock was high, given officials are already looking through the tariff shock while inflation has been high for a number of years.
• Citing concerns about Fed independence, Powell is staying on as a governor even after Kevin Warsh becomes Chair on May 15. This raises concerns of conflict with the White House.

Bond yields rallied last week due to higher oil prices, then rose faster after the Fed decision.

GDP

Elsewhere, the US economy showed stronger growth with Q1 GDP data up 2 per cent (annualised) versus the previous quarter. This was consistent with company feedback and not a surprise given the base effect of the government shutdown in Q4.

• Real final domestic demand grew 2.9% (or 2.5% excluding recovery from the government shutdown)
• Fixed business investment was the key driver, running at +10.4% annualised, due to information-processing equipment, software and data centres
• There was a partial offset from imports (+21%), driven by tech goods
• Real personal consumption slowed but remained reasonable at +1.6%, with stronger momentum over the quarter
• On the other side residential housing investment fell 8% annualised, down to 3.7% of GDP – the lowest level since Q4 2015.

The upshot is the US retainsgood momentum in GDP growth but is heavily dependent on tech investment.

Looking forward there will be a drag from higher oil prices – and this will build. But other energy prices are low, so the US is relatively well positioned versus other economies.

Fiscal stimulus is also providing short term support. US consumer plays which have been sold off may to surprise to the upside.

Inflation

The Fed’s preferred inflation measure, the Core Personal Consumption expenditures (PCE) price index, rose 3.2% annually to March. This is the most since 2023 but was in line with expectations.

It eased slightly on a monthly basis, to a still-firm +0.3%.

Real personal consumption expenditures grew at +0.2% monthly, showing robust support for economic growth. However, this relied on a declining savings rate – and is likely to come under pressure from rising inflation and declining government transfers.

The savings rate is still well above recession levels but needs wage growth to pick up to support continued spending growth.

Housing

New housing starts data for February and March came out last week. After falling slightly in February to 1,356K they jumped in March to 1,502K (versus about 1.4k expected), helped by warmer weather.

Homebuilding has been more resilient than feared but recent homebuilder commentary suggests a slowdown in April with permits quite weak in March.

Australia macro and policy

Inflation rose 1.4% in Q1, which is high but in line with market expectations.

Trimmed-mean CPI rose 0.8% for the quarter, which is also high, albeit slightly below consensus and the RBA forecast.

Bond yields were flat in response.

• Culprits:  Services inflation (+0.8%) has remained high for the past three quarters driven largely by inflation in meals out and takeaway food. Insurance prices rose 2.2%, hairdressing and personal grooming services were up 1%, and maintenance and repair of motor vehicles gained 1.5%.
• Consumer durables rose 1.4% on furniture, flooring and electric appliances, but softer housing turnover may take some pressure off. Clothing and footwear rose 3.8% due to higher silver and gold prices (the category includes jewellery).
• Offsets: At-home food inflation eased to +0.4%, but there was some medium-term upside risk from fertiliser prices. Government-administered inflation (excluding electricity prices) slowed significantly to +0.4% (eg childcare -0.7%). Housing inflation also slowed to +0.9%.

Electricity prices rose 17.8% due to the expiry of government rebates, while auto fuel prices rose +5.2%.

The Q1 data is a bit stale, given the key concern is now about higher hydrocarbon prices filtering through the economy and potentially into wage claims.

The consensus view is that we see another interest rate increase this week, and risk that further hikes will be required.

Stockland Group’s quarterly noted that total retail turnover grew 3.8% on a yearly basis to Q3 FY26, versus +3.6% in H1 FY26.

The “mini-major” category (stores between 400 and 1500 square metres such as JB Hi-Fi, Rebel Sport, Officeworks, Dan Murphy etc) and food saw the strongest growth. Homewares and apparel were the slowest.

Feedback from unlisted retailers suggests resilient spending growth.

The upshot is that there is more tightening coming in this cycle.

Short-term earnings look fine, but we are more cautious around discretionary retail and housing-related names in the medium term.

Other macro insights

The Eurozone’s economic outlook is looking much more challenged.

Q1 GDP slowed to +0.1% quarterly, while April’s CPI rose +3% yearly, up from 2.6% the previous month. While this is no worse than feared, Europe appears at greater risk of stagflation than other parts of the globe.

This is before the impact of higher oil prices on the economy (which EU is more exposed to).

The European Central Bank (ECB) and Bank of England (BOE) both left rates unchanged as expected.

The BOE noted weakening growth as an offset to inflation.

The ECB was more hawkish, as expected, warning that upside risks to inflation and downside risks to growth had increased.

Both central banks appear biased towards addressing inflation first, with a hike at the June meeting.

Commodities

Oil rose through the week given a lack of progress towards opening the Strait of Hormuz.

The longer this drags out, the longer it will take longer for supply to be restored after production shut-ins and shutdowns.

Right now, inventory releases and demand destruction – particularly in developing countries – is helping offset the supply shortage.

Asian economies have seen a raft of shortened working weeks, restrictions on transport and fuel rationing.

Australia continues to find incremental supply. The federal government announced it had secured 450mL of diesel and 100mL of jet fuel.

We are seeing some demand destruction in developed economies also.

Traffic volumes are already declining in the US and Australia. But the supply gap should increase from here – requiring more demand destruction.

There is also some circularity. Right now, the US economy is relatively insulated, allowing President Trump to stall talks and an agreement.

Conditions in the US may need to get worse before the conflict is resolved.

The UAE’s exit from OPEC is long-term bearish for oil but has little impact in the short term.

The UAE was operating near peak utilisation and will need to do repairs after the conflict ends. But long term the Emirates want to increase their supply.

US oil exports are surging, helping to fill the shortfall. But there has been no increase in shale production yet. Listed players, which dominate production, remain capital-disciplined.

It is interesting to note that LNG prices have not risen as much as expected – up only a fraction of the surge seen in response to the Ukraine conflict in 2022.

This has helped alleviate some of the conflict’s pressure on European power prices and Asian economies.

It comes as Chinese LNG demand has been softer than expected due to the impact of more investment in renewables – as well as the abundance of domestic coal as a substitute.

We are also seeing LNG demand destruction in markets like India.

Gold has been negatively correlated to oil in this episode.

Weakness in AUD terms means downgrades on mark-to-market for Australian gold miners. Given their large margins this means issues like higher diesel costs are dwarfed by the commodity price impact.

More broadly, the resources stocks have benefited from the market focus on the supply impacts from the Iran conflict.

We are mindful of the risk that the focus shifts to the demand impacts of weaker economic growth and sees the sector roll over.

Markets

US equities

US markets are hitting record highs, given less economic sensitivity to the Iran conflict and greater exposure to AI/tech. 

The tech sector was initially softer last week after reports OpenAI missed an internal revenue target (which the company later refuted).

But Anthropic’s revenue growth suggests this is driven by competition rather a slowdown in industry growth.

A strong result ultimately saw tech rebound.

Almost two-thirds of the S&P 500 has now reported with 61% beating consensus by more than a standard deviation.

Only 5% of companies have missed estimates.

But because of the uncertain macro backdrop, the reward for beats has been small.

Four AI “hyper-scalers” (Amazon, Alphabet, Meta and Microsoft) reported last week, beating consensus on sales, earnings and capex guidance.

• Alphabet rose 10% after reporting acceleration in Google Cloud growth
• Amazon gained 1% on stronger Amazon Web Services growth
• Microsoft fell 4% as growth in Azure didn’t accelerate meaningfully
• Meta lost 9% as capex guided higher despite disappointing user growth and not delivering operating leverage.

The upshot is AI infrastructure demand continues to grow.

Alphabet noted it was compute-constrained and cloud revenue would have been higher if it had the capacity. Their 2027 capex was set to “significantly increase” over 2026.

This is a positive read-through for local AI infrastructure providers such as NextDC (NXT).

Other results demonstrated a robust consumer:

• Fast-moving consumer good companies P&G, Mondelez and Unilever all showed volume growth after a softer December quarter
• Fiber Packaging companies also saw improving volume growth
• Casinos demonstrated resilient land-based revenues
• Quick service restaurants are delivering continued growth in the US as well

The impact of tax refunds is likely helping support things. But the risk is to the downside as Iran conflict drags on.

Australian equities

The ASX underperformed the US with less exposure to AI/tech and the key sectors of resources and banks taking a breather.

Utilities and healthcare were weaker on stock-specific news, while ongoing fears of a consumer slowdown weighed on consumer discretionary.

On the positive side the energy sector followed oil prices up. With economic concerns weighing on other sectors, we saw outperformance from REITs and the defensive industrials.

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About Crispin Murray and the Pendal Focus Australian Share Fund

Crispin Murray is Pendal’s Head of Equities. He has almost three decades of investment experience and leads one of the largest equities teams in Australia. Crispin’s 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 an Australian investment management business focused on delivering superior returns for our clients through active management. Pendal is part of Perpetual Group.

Find out more about Pendal Focus Australian Share Fund  

Contact a Pendal key account manager

Here are the main factors driving the ASX this week, according to Pendal investment analyst SONDAL BENSAN. Reported by portfolio specialist Chris Adams

• Find out about Pendal Focus Australian Share fund

THE AI thematic is driving related sectors higher, boosted by earnings revisions and positive observations on demand, notably last week from chipmaker Intel.

This is countered by growing uncertainty around Middle East conflict resolution and timing of the reopening of the Strait of Hormuz.

As a result, indices with large AI exposure such as the S&P 500 (+0.6%) and the NASDAQ (+1.5%) were up last week. The remainder, such as the S&P/ASX 300 (-1.8%), ended down.

As geopolitical uncertainty flows into changing inflationary expectations, we saw Treasury yields reverse the positive move from last week, with US 10-year government bond yield rising 6 basis points (bps) to 4.3%.

On a positive note, the price of refined oil products fell materially last week, as refining margins reversed from extended levels. This is a further indication that demand is likely being affected by caution around higher energy costs.

While the week was relatively quiet for economic data releases, there is a raft of economic data this week.

With tech the only positive driver of markets in the absence of better news from the Middle East conflict, there will be a big focus on tech results this week. Five of the Mag7 will report – Microsoft, Google, Amazon, and Meta on Wednesday, followed by Apple on Thursday.

US – Iran conflict

After a failed deal over the previous weekend, the oil price was relatively stable last week.

Hopes of any form of resolution faded over the week and the oil price ground higher by the day, to currently trade at US$108 a barrel (Brent crude).

While a deal no longer seems imminent, indications remain that an offramp and peace discussions are still the desired outcome.

President Donald Trump continues to find avenues to extend the ceasefire. Peace talks mediated in Pakistan planned during the week fell through.

Iran’s economic sensitivity to the US blockade of the Strait during the ceasefire is likely to be of increasing importance to the urgency with which Tehran engages on a peace deal.

The debate here is the impact on Iranian oil fields once their storage capacity is reached.

Current storage capacity is estimated by some to be less than 20 days, while the White House suggests that it is measured in days, not weeks.

The risk is reservoir damage from forced shut-ins. Once storage fills and wells must be shut in, the consequences are geological rather than just operational.

Forced shut-ins can break reservoir pressure balance, drive water and gas intrusion into the oil-bearing zones, and trigger paraffin buildup that clogs tubing and pores – after as few as four days.

The specific process is called water coning; when production stops, water sitting below the oil pushes upward into the well, trapping oil in rock pores where it becomes difficult or impossible to extract, resulting in permanent loss of output.

The recovery process is slow and extremely expensive.

This means there is a view that the US blockade is basically threatening destruction of energy infrastructure without missiles.

Refining spreads

The oil price increase in isolation would not be a major drag on the global economy.

The sting this time around has all been in the refining spread which, for some fuels, has gone up more than the absolute per barrel cost of oil.

With supply dynamics largely unchanged week to week, softening demand conditions in response to price and availability are choking off demand and refining spreads are reversing from highly abnormal levels.

For example, the “crack spread” for petrol fell from US$37.8 to US$25.5 per barrel between the 17^th and 23^rd of April. It fell from US$79.9 to US$66.2 for diesel and from US$79.6 to US$55.4 for jet fuel over the same time.

US policy and macro

Last week’s data, while minimal, continues to support the theme of economic resilience.

March retail sales were strong and above consensus, rising by 1.7% month/month. This is the largest monthly gain since January 2023.

Growth in core retail sales (excluding motor vehicle and parts & gasoline) was solid despite the oil price spike, coming in at +0.7% month/month.

Revisions to February data were also positive.

Sales are being supported by inflated tax refunds, which is helping to absorb the higher cost of fuel.

In other news Kevin Warsh, Trump’s Fed Chair elect, spoke at the Senate Banking Committee confirmation hearing saying he’s not ‘pre-committed to any policy decision’.

He argued that the Fed should reduce size of the balance sheet and also emphasised trimmed mean and median as better measures of inflation – both of which are substantially lower than the Fed’s current preferred measure (the core personal consumption expenditures index) at the moment.

Though a dovish tilt, this change is unlikely to have a near-term impact on the path of interest rates in the US.

Warsh’s confirmation now appears to be largely a done deal, with the Department of Justice dropping the investigation into outgoing chair Jerome Powell.

At the earliest, Warsh could take over when Powell’s term as Chair expires on the 15^th of May.

This Wednesday is the April FOMC meeting.

Markets are pricing a near-100% chance of a hold, driven by upward inflation pressures stemming from the war as well as the resilient macro backdrop such as improving labour market trends and resilient consumer spending.

Markets

The bull run for the US tech sector continues.

Intel reported a strong beat and upgraded outlook, driving the stock and tech sector higher. It provided renewed bullish demand commentary for central processing units (CPU), noting the attach rate of graphic processing units (GPU) to CPUs in new AI workloads could move from 1:8 to 1:2 or even 1:1 going forward.

Meta also announced that it will partner with Amazon to deploy hundreds of thousands of AWS Gravitron CPU chips.

Software stocks were rattled by a downgrade from Service Now, a company providing cloud-based software to automate business workflows. It fell 18% and drove the sector down 6% in one day, highlighting the sensitivity of these stocks to negative earnings news.

The software index was basically flat for the week after rising early in the week.

US Reporting Season

US reporting season is now two weeks in with 26% of companies (by market cap) having reported. This week 25% of the S&P (by market cap) will report.

Results have been generally positive both for actual results and overall revisions.

• The blended earnings growth rate stands at 15.1%, up from 12.6% at the start of earnings season.
• Forward revisions are in the order of 2-3% to date.
• In aggregate, companies are reporting earnings that are 12.3% above expectations, above the 7.2% one-year average positive surprise rate and the five-year average of 7.3%.

Australia

The S&P/ASX 300 was down 1.8% over the week, lagging Asia and US peers due to the absence of direct AI beneficiaries.

Defensive sectors led given the renewed uncertainty. Banks have continued lower on increased provisions stemming from disruption caused by the war.

The list of companies pre-announcing earnings continues to grow.

Stocks where the earnings misses have been driven by revenue have been hit hard, as have those where the negative impact from the Middle East conflict came as a surprise.

Those companies where the earnings misses related to Middle East disruption were already transparent, or are temporary in nature, have not seen major reactions to announcements.

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About Sondal Bensan and Pendal

Sondal Bensan is an investment analyst with over 19 years of experience covering the Retail, Telecom, Media and Transport sectors. He joined Westpac Investment Management in 1999 and has previously held roles with Commonwealth Bank and Bell Commodities. Sondal holds a Bachelor of Commerce (Finance) and a Bachelor of Science (Maths and Statistics).

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

Find out more about Pendal Focus Australian Share Fund  

Contact a Pendal key account manager

While others reposition amid today’s market ructions, Pendal’s BRENTON SAUNDERS has seen volatility before – and is focused on the midcap opportunities now emerging

• Volatility revives active opportunities in sold-off midcaps
• Energy, infrastructure benefit; SaaS de-rated
• Find out more about the Pendal MidCap fund

Across three decades, Brenton Saunders – portfolio manager of the Pendal MidCap Fund – has navigated everything from the 1997 Asian financial crisis and the dot-com bubble to the global financial crisis and Covid.

He says the current situation in the Middle East is different in its particulars, but the ripple effects may feel familiar.

“This is a very geographically focused issue that is slowly permeating into different parts of the economy globally, beyond the obvious beneficiaries and companies suffering as a direct result of it,” Saunders notes.

Even so, he isn’t making material changes to the fund’s midcap positioning, preferring to build portfolios designed to weather a range of market scenarios.

“We see ourselves as portfolio planners, not market predictors. We try to build portfolios that are resilient across environments by diversifying properly and avoiding unintended macro exposures,” Saunders explains.

That balance matters during rotations and volatility. Recent swings have been driven by the conflict in the Middle East as well as investor concerns about AI-enabled competition for SaaS providers.

Volatility can create active opportunities

Saunders says periods like these can favour active management.

“When we have big geopolitical events, the market extrapolates what that means for the economy – assuming it will persist,” he says.

“That has created opportunities in companies that have been sold off.”

Historically, Saunders and the Pendal MidCap team have been able to use episodes of market volatility to identify and add value via opportunities in individual companies.

Against that backdrop, Saunders says parts of the energy complex are among the more obvious potential beneficiaries.

“You’ll likely see individuals and governments looking to shore up supply lines—becoming more self-reliant in procurement and refining of oil, for example, and more broadly in the procurement and generation of power,” Saunders says.

“Companies that produce energy are obvious beneficiaries.

“Alternative sources of energy such as lithium – given its role in batteries – could also get an added impetus from heightened energy-security concerns.

“Nuclear energy, too, is getting more attention globally than it has in some time as an alternative.”

Saunders also expects governments to duplicate and reinforce parts of their fuel-supply infrastructure, creating a tailwind for engineering and construction companies.

“Some contractors we can invest in – companies like Worley – are well placed to help design and manage the construction of facilities such as LNG plants, as well as oil and gas infrastructure that may need repair in the Middle East.”

Pendal MidCap Fund owns a position in Worley.

AI not necessarily an ‘existential threat’

SaaS providers, meanwhile, have faced significant de-rating following a wave of new generative-AI product releases.

But Saunders believes the fallout has been a bit overdone.

“These software companies will no doubt have to adapt to an AI-heavy environment, but most are solid businesses,” he says.

“We haven’t seen a clear impact from AI in their earnings so far. And we think many are likely beneficiaries if they incorporate AI into their products in a meaningful way.

“The notion of AI potentially disintermediating  software companies shouldn’t be dismissed – but we think the market narrative has swung too far.”

The sell-off has pushed valuations to levels Saunders describes as attractive – both relative to history and in absolute terms.

“Our assessment so far is that many of these high-quality software and SaaS businesses are exceptional. They benefit from incumbency… and they’re among the most tech-savvy companies we deal with.”

Saunders notes that many software companies also have access to proprietary data that generic AI applications may not be able to access via the public internet.

“So there are more strings to their bows than I think people are giving them credit for.

“Over time, there may be instances where products are replicated or competition increases, which could show up in pricing. But I don’t think it’s necessarily an existential threat for most of them – at least not yet,” Saunders says.

Investing can deliver more than returns. The African Development Bank’s social bonds are helping drive lasting change across some of the country’s most vulnerable communities.

• African Development Bank social bonds fund essential services
• Senegal livestock project boosts livelihoods, climate resilience
• Find out more about Pendal’s Responsible Investing capabilities 

THE Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund continue to support projects that have positive outcomes outside Australia.

An example of this is the AUD Social Bond from the African Development Bank which is a AAA rated development bank.

These types of social bonds have projects that focus on the underprivileged in society in Africa.

The focus of African Development Bank Social Bonds is on the most pressing needs of people who live in Africa. They address access to essential services, basic infrastructure, food security and sustainable food systems, employment generation and socioeconomic advancement.

Examples of the type of projects that these types of bonds fund include support for a project in Senegal in West Africa that is seeking to provide healthier and more sustainable food production of meat, milk and honey.

The project involves increasing the productivity, processing, marketing and logistics of animal production.

This is done by assisting stock breeders, meat wholesalers, small businesses – especially those owned and managed by women and youth, and public livestock services.

The project is estimated to assist 32,000 people directly, half of which are women and youth, and indirectly benefit 950,000 people. An aspect of this project is focused on climate adaptation, which is particularly vulnerable to drought events.

These types of projects are helping support the underserved in the world by providing livelihoods, as well as sustainable food supply. We can support projects like this through our investments in social bonds like those from the African Development Bank.

Through the World Bank’s Sustainable Development Bonds, investors can help channel capital into practical projects that strengthen communities, improve access to essential services and support climate resilience.

• Capital advances poverty reduction, climate stability and shared prosperity
• Funding has supported people affected by Ukraine war
• Find out more about Pendal’s Responsible Investing capabilities 

THE Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund invested in a World Bank (International Bank for Reconstruction and Development, IBRD) Sustainable Development Bond, which supports a broad portfolio of development projects across emerging and developing economies.

IBRD lending spans a wide range of environmental and social priorities. On the environmental side, financing supports renewable energy and energy‑efficient infrastructure, as well as climate‑resilience activities.

Alongside this, lending delivers important social outcomes, including improved access to education and healthcare.

Examples of projects supported through this lending include the expansion of electricity supply to rural areas of Bolivia, where more than 100,000 people[1] gained access to new or improved electricity services.

In Angola, IBRD financing has strengthened public health preparedness through training programs that equipped around 10,000 health workers[1] with skills in infection prevention and control.

More recently, this funding has supported people affected by the war in Ukraine through the Housing Repair for People’s Empowerment project[2].

This program has enabled rapid repairs to partially damaged homes, helping families secure safe and habitable housing ahead of winter. In many cases, this support is genuinely life‑saving.

These bonds provide exposure to a AAA‑rated supranational issuer while directing capital toward globally significant development outcomes, including supporting climate stability, poverty reduction and shared prosperity across emerging and developing economies.

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[1] https://thedocs.worldbank.org/en/doc/d8c088d3286decf305a7c0f3fe667130-0340022025/original/World-Bank-IBRD-FY24-IMPACT-REPORT.pdf

[2] https://documents.worldbank.org/en/publication/documents-reports/documentdetail/099082223100029507

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

• Find out about Pendal Focus Australian Share fund

THE remarkable recovery in the US market continues; the S&P 500 (up 4.6% last week), has moved from a 9% drawdown to a new all-time high in 11 days – the quickest time in 75 years.

As of Friday night, the NASDAQ finished up for 13 consecutive days – its longest streak since 1992.

We also saw this translate into lower bond yields and a weaker US dollar last week, which is risk friendly.

The revival reflects a combination of:

– The belief that the US administration will find a solution for the Iran conflict and that the tail risks to global growth are diminished. This is reflected in Brent crude falling 5.1% and West Texas Intermediate dropping 13.2% last week.

– A significant position reversal from systematic strategies and the unwind of market hedges.

– Strong earnings for US financials signalling that the economy was holding up and earnings season should be positive.

– Positive signals in the tech sector, with TSMC and ASML noting robust AI-related demand.

Overseas equity markets have lagged the US recovery as they are more exposed to higher energy prices and supply disruption and had less economic growth momentum to act as a buffer.

Australia is more exposed than most, due to the shortage of fuel inventory, the pre-existing inflation pressures and tightening monetary policy, which leads to greater downside risk to corporate earnings. The S&P/ASX 300 was down 0.1% for the week and is up 5.6% month-to-date.

The outlook for the Gulf crisis remains as opaque as ever.

The market is pricing some form of ceasefire, which translates into a messy peace agreement where key issues such as uranium enrichment are subject to ongoing negotiations, but the Strait of Hormuz is opened and Iran can access capital.

The current ceasefire deadline is Wednesday.

US – Iran conflict

The key issue remains whether the Strait will be reopened to shipping, as had been suggested at the outset of the ceasefire – and the view here continues to oscillate.

There is no clear read on what is happening.

Daily transits had picked up from 11th of April, but only from around 4-5% of pre-crisis levels to 8-10%.

The US blockade of Iranian ports has acted as a constraint (affecting ~2 million barrels per day (bpd) of oil), although it has given the Trump Administration additional bargaining leverage.

Things turned positive last Friday, with the Israel-Lebanon ceasefire seemingly enabling the resumption of negotiations and Iran declaring the Strait was open.

However, things turned more negative over the weekend. An Indian-flagged ship – which thought it had approval to pass through the Strait – was fired upon and forced to turn back, which has led to a drop off in transits.

Overnight there have been reports of the US Navy firing on, then seizing, an Iranian cargo ship.

There are two perspectives on the situation:

1) The bearish take is that the Iranian side is fractured and can’t deliver on a coherent agreement.

2) The more positive interpretation is that this is all part of the negotiating process.

Clearly with the S&P 500 back to highs and the S&P/ASX 300 up 7% from its March lows, the market is assuming the left tail risk is diminished and global growth will hold up.

Again, there are two perspectives on the market’s reaction:

1) We see a replay of the Liberation Day rally where, despite the tariff issue playing out for months, the market continued to rally. Then, the market did a far better job than any economist in gauging the underlying economic situation and concluding that earnings were going to hold up well.

2) The negative perspective is that equity investors do not understand how physical commodity markets work. The risk is product shortages will affect supply chains, crimping global growth (with worse effects in Asia and Europe than in the US) and putting upward pressure on inflation which limits the ability for interest rates to fall, leading to earnings disappointment.

Our view is that we must ensure we manage to these different scenarios in our portfolios.

We can see a lot of heavily discounted stocks which provide good leverage to a normalisation of trade, with more limited downside. We are wary of more domestically exposed stocks, given Australia’s fuel supply issues.

There are three broad scenarios which appear possible at this point.

1) No deal, Strait remains blocked, conflict resumes.

This would clearly be very negative for markets, with further supply disruption having increasingly non-linear effects on the world economy as the buffer of oil and other inventories has been run down.

2) Partial re-opening on an extended ceasefire or initial peace agreement.

This is seen as the most likely option given a lack of regime change in Iran and the fact that the issues requiring negotiation and resolution are extensive, including: enriched uranium, ballistic missiles, Iranian proxies, Lebanon, the Gulf Cooperation Council’s (GCC) relationship with Isreal, and access to capital to help rebuild Iran.

Some of these issues have previously been subject to months of negotiation and so are unlikely to be resolved in a matter of days.

This scenario is likely to lead to a step-up in flows of product from the Gulf, but nowhere near back to pre-conflict levels.

It is estimated there are 170-180 million barrels of oil sitting in floating storage inside the Gulf, so there is material product ready to flow out.

This could usually occur in two weeks; however the expectation is that uncertainty will prompt some reticence from ship owners, seafarers, and insurers to transit the Strait, meaning it could take four to six weeks to clear this backlog.

That still would represent 5 million+ bpd, which would go a long way to reducing the physical shortage given the pipelines would still be operating to supplement supply.

But there would be the two to five weeks it takes to get this crude to refineries, which also delays the resolution of physical shortages.

There is also the matter of how much oil production has been “shut-in” (i.e. the wellhead having been temporarily closed), primarily in Kuwait, Iraq and Qatar. It can take weeks to months to restore this production. 

All up, supply disruptions would probably last six months, and oil could trade in the US$80 to US$90 range.

3) Full re-opening of the Strait.

This is the least likely scenario and would likely require a more material leadership change in Iran, or a large shift in the US/GCC bargaining position. If it did transpire, it could see oil fall back below US$80.

Risk to supply through the Bab al-Mandeb Strait

Concerns that the Houthis would shut the Bab al-Mandeb Strait (which connects the Red Sea to the Gulf of Aden and the Indian Ocean) flared a couple of times in the week.

There is no evidence yet of this occurring, but it is another bargaining chip for Iran in the discussions.

It could still happen, but there are several factors which can counter the more bearish views:

1) The Houthi strike capability has been degraded in the last 12 months.

2) Their leadership has seen how Tehran has not been able to support Hezbollah in Lebanon – and will therefore be wary of being left exposed should the US/GCC attack them.

3) A lack of ability to communicate with Iran, which limits coordination and supplies.

4) The Saudis have begun to organise a more coherent internal opposition to them.

5) The Houthis are not as ideologically aligned to Iran as Hezbollah and the Iraqi militias are.

Oil demand

So the outlook for oil prices is tied to the supply issues discussed above, however we also need to consider demand.

The announcement of the Strait’s re-opening drove a big move lower in the financial oil markets – but it also coincided with a fall in “dated Brent” (the price for North Sea crude oil for physical delivery in the next 10-30 days) which dropped $28 to $116.

This price should not be affected by future-looking sentiment. Instead, it reflects the first signs of demand destruction, with European hydroskimming refiners cutting purchases.

These are more basic operations, with higher yields of lower value products (i.e. not diesel or jet fuel) and their margins have been squeezed as they cannot pass on the physical premium in product prices.

This is how commodity markets work, with higher prices choking demand.

It is disproportionately felt by poorer end markets (e.g. some emerging markets) and in lower value products.

Again, this demand destruction may help in the middle scenario described above – but would be materially greater in the case that the Strait remains closed, which could possibly lead to rationing.

Australia

Understanding the impact of the fuel crisis on Australia’s economy is critical for our portfolios.

As a starting point it is important to note that the economy has been strong.

This is evident in last week’s March employment data.

– The 12-month employment growth rate is 1.8% and three-month annualised is 2.6%.

– Full-time jobs growth was strong at 53,000 and year on year is also accelerating to +1.9%. 

– The labour market is clearly tight, with unemployment at 4.3% and the total underutilisation level remaining at 40+ year lows and around 3.5% below the pre-pandemic level.

– Hours worked is growing at a six-month annualised rate at 3.0%. This compares to a 1.8% rise in the population.

– We also note that job losses are at record low levels, despite AI fears.

This means the economy is enjoying good income growth, supporting consumer spending. Australian credit growth was also strong and above trend.

There has also been higher saving in recent quarters which provides a buffer to spending patterns.

All this signals that the economy was running above capacity, driving inflation and rates hikes from the RBA.

But the point is the economy has gone into this shock in a good position.

The headwind from fuel is estimated at about $15-17 billion per quarter in terms of additional spending.

The savings buffer is $7 billion per quarter, so the remainder will eat into other consumption.

However, if wages growth remains solid (likely helped by the upcoming Fair Work Commission ruling) spending should slow but stay positive.

For the overall economy, with population growth of 1.8% we should avoid recession, with GDP rising around 1%.

This scenario is reasonably benign for earnings and equities. Under it we may get rates hiked one-to-two more times and then held stable.

However, there is a more bearish scenario – which is what happens should we need fuel rationing.

Our discussions with companies indicate that this is a scenario they are planning contingencies for, in the possible context that the government chooses to preserve fuel for critical parts of the economy and begins to allocate it by directing rationing amounts.

Barrenjoey estimated the potential impact of this. Assuming 15% rationing over a three-month period, its modelling suggests a 1.5 percentage point drag on GDP, taking the economy negative for a quarter before a big bounce back once fuel is available.

The impact comes mainly from industrial production (0.7-percentage-point impact), then the flow on effect of consumer confidence on spending (0.5-percentage-point impact).

The scenario does highlight this is a short, sharp effect – and also that it could lead to a 50-basis-point (bp) shift down in the interest rate curve, to help lessen the confidence shock.

For equities this would likely lead to a material market decline, although relatively short-lived and very much skewed to domestic focused companies.

Markets

The rally in US equities has been remarkable in a historic context. The 11 days to regain a new high after an at least 8% drawdown is the fastest going back to 1950.

In contrast, it took the market 55 days to regain its high after the 12.3% drawdown in response to Liberation Day last year.

The NASDAQ’s run of 13 consecutive “up” days is its best run going back to 1992.

Flows have been a big driver of the recovery: Goldman Sachs reported it had seen the largest ever five-day buying of global equities by Commodity Trading Advisers (CTAs – professional managers buying and selling futures contracts).

Market macro signals in the US are supportive of the economy, with consumer staples hitting a low relative to the S&P 500.

Copper also pushed back to highs, helped by concerns supply may be disrupted by sulphuric acid and diesel shortages.

Aluminium is close to all-time highs with supply disruption of 2 million tonnes creating a deficit of 2.6% – the highest since 2000.

The Australian dollar is also breaking out to cycle highs versus the US dollar, despite the challenged outlook for the domestic economy.

Australian equities

The ASX was held back last week by underperformance from the banks on the back of a Westpac (WBC) update indicating higher collective provisions, serving as a reminder that if there is an economic slowdown, bank earnings may be perceived to come under some pressure.

Industrials were also down, reflecting domestic growth concerns with downgrades from Qantas and Cleanaway relating to fuel, although those stocks did not underperform materially. Tech had a very strong bounce, triggered more by risk reversal than any shift in perception on AI risks.e month, which suggests returns were impacted by transition flows as more money went to index-trackers.

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About Crispin Murray and the Pendal Focus Australian Share Fund

Crispin Murray is Pendal’s Head of Equities. He has more than 27 years of investment experience and leads one of the largest equities teams in Australia. Crispin’s Pendal Focus Australian Share Fund has beaten the benchmark in 12 years of its 16-year history (after fees), across a range of market conditions.

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

Find out more about Pendal Focus Australian Share Fund  

Contact a Pendal key account manager

Victoria Power Networks’ inaugural green bond is accelerating critical grid upgrades, unlocking renewable connections and supporting Australia’s low-emissions future.

• First VPN green bond funds key infrastructure
• Certified independently, reducing greenwashing risk
• Find out more about Pendal’s Responsible Investing capabilities 

INCREASING electrification, expanding the use of non-fossil fuel sources of electricity, and connecting renewables to the grid are the three most important components of achieving a low-emissions future for Australia.

In the final quarter of 2025, Victoria Power Networks came to market with their first green bond that seeks to directly support these priorities by funding critical infrastructure upgrades and enabling more renewable energy to flow to homes and businesses across Victoria.

Victoria Power Networks (VPN) is a major electricity distribution network that manages the poles, wires and electricity across Melbourne and western and central Victoria. It operates under the names CitiPower and Powercor.

The net proceeds of the VPN Green Bond are to be used to finance or refinance eligible green projects that satisfy the relevant eligibility criteria as determined by VPN. The intention of these eligible green projects is to work towards VPN’s goal which seeks to, amongst other things, reduce carbon emissions.

This includes investments in low voltage network infrastructure, advanced operational technology systems, and the rollout of smart meters.

These upgrades are essential for integrating more renewable energy into the grid, making it easier for homes and businesses to access clean power and manage their electricity use.

Significantly, this bond helps fund the financing of new transmission lines to connect renewable energy projects to the grid.

These investments are crucial for reducing carbon emissions, improving grid reliability, and supporting Victoria and Australia’s net zero targets.

The VPN Green Bond is also noteworthy as the first Australian bond to align to two new standards: the Australian Sustainable Finance Taxonomy and the European Union Taxonomy for climate change mitigation. [1]

The bond is certified by the Climate Bonds Initiative[2] and has received a second-party opinion from Sustainalytics[3]. Aligning to standards and external certification is an important way to reduce greenwashing risk.

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[1] ISS-External-Review-AU-and-EU-Taxonomy-VPN-3-Oct-2025.pdf

[2] Certificate-VPN-1

[3] Sustainalytics-SPO-VPN-Sustainable-Financing-Framework-3-Oct-2025.pdf

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