In a state where electricity is already largely renewable, the University of Tasmania is reducing emissions by tackling embodied carbon across its new builds and refurbishment projects.

• UTAS targets embodied carbon cuts
• Achieved 30 per cent new build, 60 per cent refurbishment emissions reductions
• Find out more about Pendal’s Responsible Investing capabilities 

TASMANIA has among the lowest carbon emitting electricity grids in the world because it has access to renewable hydroelectric and wind generation.

That meant when the University of Tasmania looked for ways to decarbonise, the traditional path of focusing first on energy sources was not an option — in a renewable grid, as energy efficiency alone won’t significantly cut emissions.

Instead, the University has determined that the most impactful approach to decarbonisation is to reduce the embodied carbon in its buildings.

The University focused on adaptive reuse of existing buildings to avoid demolition and rebuilding, which is carbon intensive, and the adoption of low embodied carbon construction practices in refurbishments and new construction.

Their target is to have at a minimum a 20 per cent reduction in upfront carbon emissions for eligible green projects. To date, they have achieved over 30 per cent reduction in new construction and over 60 per cent in refurbishment and reuse projects.

The Regnan Credit Impact Trust and Pendal Sustainable Australian Fixed Interest Fund have invested in the University of Tasmania Green Bond 2032.

The proceeds from this Green Bond have been used to finance projects that meet specific green building eligibility criteria as set out in the Green Bond Framework[1], which seeks to reduce carbon emissions embedded in products and materials used in construction and refurbishment projects.

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[1] Green Bond Framework UTAS

Source: University of Tasmania, Green Bond, Green Bond | Sustainability | University of Tasmania

Here are the main factors driving the ASX this week according to Pendal investment analyst GRAEME PETRONI. Reported by portfolio specialist Jonathan Choong

• Find out about Pendal Focus Australian Share fund

LAST week’s news of a ceasefire agreement triggered a sharp relief rally, with Brent crude falling 13% and most major equity markets gaining between 3% and 5%.

The move was concentrated as virtually all the price action occurred within the first 24 hours.

There was little follow-through as attention quickly shifted to the practical difficulties of implementing any deal, and to the broader economic ripple effects that may persist even if a resolution is reached.

However, over the weekend we have seen another reversion, as it appears initial talks have broken down between the US and Iran.

Middle East conflict

The ceasefire brokered by Pakistan quickly revealed some key differences between the US and Iran positions.

The Trump administration announced a two-week suspension of hostilities, conditional on Iran agreeing to the immediate and safe opening of the Strait of Hormuz.

Iran’s response however stated safe passage through the Strait would be possible “via coordination with Iran’s Armed Forces” which is a materially different proposition. Iran had also expected Israel’s attacks in Lebanon to stop.

Moreover, there remains a wide gap between both parties on the 10 or 15 points for any extended deal.

Iran’s published 10-point framework – which the US described as a “workable basis for negotiation”, includes Iran retaining control of the Strait, acceptance of Iran’s right to uranium enrichment, the withdrawal of US combat forces from the region, and a cessation of hostilities on all fronts including Lebanon.

Several of these conditions appear fundamentally incompatible with US and Israeli redlines.

The US clearly wants an off-ramp, but the Strait of Hormuz needs to be re-opened at a minimum, which has become a key point of leverage for Iran.

Tanker transits through the Strait of Hormuz had started to lift in the week leading up to the ceasefire but remain 85-90% below pre-conflict traffic.

Following the ceasefire, little has changed. Traffic slowed on 8 April, before resuming on 9 April, but at a reduced rate.

There were also reports of Iran requiring vessels to pay a toll of US$1 per barrel – equivalent to approximately US$2 million per large tanker, to be settled in bitcoin to avoid confiscation and sanctions.

Safe shipping routes were also published by Iran, with suggestions that passage would be limited to 15 vessels per day, compared to normal traffic of ~140, across cargo and tankers, inbound and outbound.

Data continues to suggest exports from virtually every major Middle Eastern producer ex-Iran have collapsed to near zero since the conflict began, with Asia being the primary buyer.

Impacts on refined products

With the Strait remaining throttled, the key issue is the flow on to refined products, such as petrol, diesel and jet fuel.

Middle East refineries have been shut due to direct attacks and an inability to export.

Asian refineries source most of their crude from the Middle East, with the lagged impact of reduced supply only just starting to be felt given average voyage times of two to six weeks.

To date, global refinery throughput has reduced around 4 million barrels per day (mb/d) or around 7% of pre-conflict output.

The risk is that this deteriorates further as commercial crude inventories erode with some estimates suggesting refinery cuts could double by May if the situation does not improve.

If or when the Strait re-opens, it will take time for refinery throughput to recover, with market estimates ranging from three to six months.

Several factors contribute to that lag:

• The Strait is likely to reopen only partially, and potentially under Iranian coordination rather than freely.
• Middle Eastern refineries will need to rebuild operating rates from a low base.
• Product tankers which have largely repositioned away from the region, will need time to return and may be cautious about doing so until security conditions are clearly established.

This likely means prices of refined products will remain elevated for some time.

In Australia, fuel security remains a focus given low inventory and indirect reliance on the Middle East via Asian refineries.

At present, the situation remains manageable: Petrol stocks stand at approximately 39 days of consumption cover, diesel at around 30 days and jet fuel similarly.

The government announced funding to help operators secure supply, confirmed successful discussions with Singapore to keep trade flows open and expressed confidence in inventory levels through to mid-May.

Separately, seven diesel cargoes bound for Australia from the United States have been reported.

Nonetheless, the balance could become more difficult the longer the crisis lasts.

Macro and policy

The emerging energy crisis brings risk of increased inflation and reduced growth, as reflected in cash rate expectations.

The shift in the short end of the curve has been significant. Rate cut expectations have moderated by around 25 basis points (bps) in the US and Europe, and by approximately 50bps in the United Kingdom, though the implied path remains materially higher than it was before the conflict.

US

The first March inflation data came from the US, where the CPI rose 0.87% for the month, bringing the year-on-year (YoY) rate to 3.3% – in line with consensus.

Energy rose 21% for the month, but there was no meaningful spillover into food prices, with core CPI rising modestly by 0.20% month-on-month (MoM) versus 0.3% consensus, and 2.6% YoY.

Based on this data, market estimates for core PCE are ~3.1%, reflecting the PCE’s lower weighting to housing and higher skew to services inflation.

When read alongside the prior-week’s non-farm payrolls report, the Fed likely remains on hold in the next meeting.

This data had also indicated the US labour market was on a firm footing heading into the war.

Looking through monthly volatility (driven by strikes and weather effects), non-farm payrolls increased by an average of 68,000 over the past three months and 15,000 over the past six months. The unemployment rate declined 18bps to 4.26%.

Europe

European CPI data for March will be released this week. Flash data suggests a lift in headline inflation from 1.9% to 2.5% YoY, driven by energy, but with core inflation moderating from 2.4% to 2.3% YoY.

Europe has more exposure than the US to global energy markets, but the CPI basket is more skewed to household energy than motor fuel so the pass through is delayed given regulated tariffs.

Nonetheless, composite PMI data pointed to pressures on input prices for the UK and Europe.

China

China released its own March inflation data. Energy inflation was evident in PPI at +0.5% YoY, which is the first positive print since late 2022.

But there was little pass through to CPI which moderated to +1.0% YoY in March, down from +1.3% in February. This missed consensus for +1.2% and remained well under the National People’s Congress inflation target of 2%.

Australia

There was little new data in Australia, however the PMI data sent a cautionary signal in March indicating that business activity is slowing and input prices have spiked.

This represents the largest month-on-month increase since March 2022, the period of the last major global oil shock.

AI

Over the week, there was some news flow on Anthropic, with annual recurring revenue (ARR) lifting 58% in three months to $30 billion, overtaking OpenAI.

Further detail also emerged on Anthropic’s Mythos product, with preview access provided to 11 core partners and 40 additional organisations, to help identify cybersecurity flaws in operating systems and browsers.

US Treasury Secretary Scott Bessent subsequently summoned bank leaders to Washington for a meeting on AI cyber risks.

The market also continues to grapple with the potential longer term economic impact of AI adoption on employment.

While still early days, it is encouraging that use cases to date are predominantly focused on coding.

A recent report surveying around 6,000 US companies was also published suggesting relatively few companies (8%) expect a large negative impact on employment (>5%) over the next three years.

Instead, the focus seems to be more on productivity gains.

Private Credit

Despite the recovery in markets, global private equity stocks remain under pressure, reflecting continued uncertainty in private credit portfolios.

The most immediate focus has been on retail redemption requests which have risen sharply in Q1 2026 relative to prior periods and are now running above the 5% quarterly cap that most funds impose to manage liquidity.

Blue Owl has been hit particularly hard, with redemption requests of 41% on its technology income fund and 22% on its direct lending fund.

In the medium term, the bigger debate is the extent to which asset quality might deteriorate, given private credit’s skew to smaller companies, particularly in the software industry.

To date however, there is little evidence of defaults. Funds typically quote default rates sub-1%, although this excludes restructurings which likely understate the true level.

Taking a broader view that includes restructurings, there are some signs of stress. Payment in Kind (PIK) loans have been increasing, with Fitch’s broader view of defaults lifting from 4.6% to 5.8% between December 2024 and January 2026.

Within the direct lending subset specifically, (Fitch’s Privately Monitored Rating or PMR dataset) defaults lifted from 7.8% to 9.4% over the past year ending January 2026.

The rising risk profile for software is also evident in publicly traded syndicated loan markets, where secondary trading implies a spread of >700bps for the software sector.

Concerns are also evident in the price for public BDCs, which are trading at a ~20% discount to NAV. This implies a ~10% markdown in loans, after allowing for leverage.

Overall, while there will likely be some issues in private credit, the risk of financial contagion appears low.

There are potential issues around bank lending to private credit which is estimated at US$410–540 billion, and uncalled investor commitments at a further US$310 billion. Questions have also been raised about capital backing insurance investments, given offshore reinsurance subsidiaries. 

However, these are modest relative to US bank balance sheets of US$33 trillion, pension fund assets of US$28 trillion and insurance company balance sheets of US$14 trillion.

Markets

It was a strong week for the Australian market with the S&P/ASX 300 rising 4.5% for the week, with little differentiation by market cap.

However, there was significant rotation by sector.

Financials outperformed, driven by gains in banks and diversified financials alongside Materials with gold stocks also leading. Select growth names also moved higher.

On the other side of the ledger, Energy was the worst performing sector down 3.7% for the week after the crude price reversal.

Defensives, which previously outperformed, gave back ground, and healthcare and software names were mostly softer.

As the US-Iran stand-off continues, gold isn’t delivering the usual safe-haven comfort. Pendal investment analyst RACHEL FOLDER explains how to stay positioned for volatility

• Gold crowded
• Geopolitical volatility is creating opportunities
• Find out about the Pendal Smaller Companies Fund

WITH gold positioning already stretched, the evolving geopolitical backdrop is creating fresh opportunities beyond the crowded trade.

Gold has increased from roughly 5 per cent of the S&P/ASX Small Ordinaries Index (benchmark) four years ago to 18 per cent, at the time of writing.

Over the course of January alone, the gold price rallied nearly 30 per cent to over US$5,500 an ounce. However, it has since given back many of those gains.

While Folder describes the precious metal as having had an “incredible run” in recent times, the Pendal Smaller Companies Fund has actually been underweight in gold small caps.

Why?

“When commodities rally, we tend to see the lowest quality assets run the hardest.  While we have participated in the gold rally, our investment process has a strong bias to quality, which has resulted in us being underweight the really pointy end of the sector. This is a deliberate risk management strategy,” says Folder.

Gold positioning has been extreme, and the sector hasn’t escaped the fallout from the current geopolitical uncertainty.

The flow-on effects of the Iran conflict include higher diesel costs.

Folder’s team recently spent time in Perth visiting numerous gold companies to understand the sensitivity of fuel price moves to production costs.

“These companies are significant consumers of diesel, and broker research suggests the increasing diesel price in the last month equates to around A$200 per ounce of gold produced – for some operators this represents a significant impact to cash margins,” she says.

“We are picking stocks rather than trying to time the market or solve for one macro outcome. So, in positioning the fund in a balanced way we are always aiming to ensure we have positions that will perform across a range of scenarios.”

AI sell-off

Another key thematic that has been driving markets is AI disruption.

In these types of situations, Folder says the market’s instinct is to “shoot first and ask questions later”.

“We see this as an opportunity, and we think some names have been unfairly hit,” argues Folder.

“We have seen a selloff in some key high-quality names such as AUB Group, for example.”

This has been indiscriminately impacted by the fear that AI will disrupt the insurance broking sector – for example, Tuio, a small Spanish insurance company, launched a vibe-coded app that quotes and binds simple insurance policies.

AUB has de-rated on this uncertainty alongside many global insurance broking names.

“We see AUB as being disproportionately impacted here, because the AI disruption narrative misses some key points around the complex commercial risks that rely on deep domain expertise, market access and underwriter relationships,” explains Folder.  

“Ultimately we see AI making these businesses more productive with broader moats.”

Opportunities emerging from Middle East conflict

Gold has retraced as the weight of money flows into oil/energy exposures and inflation fears persist.

Defence stocks are performing well on a relative basis, with Codan – an Adelaide-headquartered company providing advanced communications solutions to defence and security forces across various international jurisdictions – one example of this.

Another key beneficiary of the Middle East conflict, according to Folder, is Channel Infrastructure – a New Zealand-based operator of the country’s only fuel import terminal.

“The company has significant latent capacity at its storage facility, supporting a strong upside valuation case as it enters further long-term contracts,” says Folder.

“Following recent developments in the Middle East we think the likelihood of Channel selling its remaining capacity at very attractive rates has just improved considerably.”

But Folder notes that these beneficiaries are companies that are already well understood by the Pendal team.

“Both Codan and Channel Infrastructure have been held in the fund for a while. While prospects for both companies have recently improved, this is in addition a strong investment thesis that already existed without the crisis.”

The length of the war will determine how far reaching the impacts are into the broader economy, but Folder says the Pendal small cap team is carefully monitoring the situation.

“We aren’t radically changing the portfolio at this stage given the uncertainty, we continue to take a balanced approach,” she says.

Energy importers are the main losers while some energy exporters and China remain resilient, argues Pendal’s Emerging Markets team

• Iran war shocks commodities, EM inflation pressures intensify
• Energy importers lose, exporters and China hold
• Find out about Pendal Global Emerging Markets Opportunities Fund

THE Iran conflict represents an exceptional negative supply shock to global commodity markets, with significant implications for emerging markets and developed economies.

Crude oil is at risk, but also refined products, LNG, fertilisers, petrochemicals and specialist products such as mining explosives, sulphuric acid and helium.

The impact on emerging markets includes sharply higher bills for energy‑importing economies, placing pressure on current account balances and exchange rates.

Inflation will rise everywhere, initially via energy prices and later through food prices, driven by fuel and fertiliser costs.

Currency weakness in energy importers will further amplify inflation, while outright shortages are likely to constrain activity.

These inflation effects are expected to be most acute in EM Asia and (as in 2022) in the world’s poorest nations.

The shock creates a clear split in emerging markets.

We see a four-part taxonomy:

1. Energy importers are the primary losers, facing a combination of weaker growth and rising macro stress
2. Energy exporters, by contrast, benefit from improved terms of trade and stronger fiscal and external positions
3. China is significantly insulated by recent policy choices
4. Gulf Cooperation Council markets (Saudi Arabia, UAE, Qatar, Kuwait, Oman and Bahrain) are beneficiaries of higher hydrocarbon revenues but face war damage and export constraints

Here is a closer look at each category:

Energy importers

Energy importers are the clear losers, with several large economies highly exposed.

Countries such as India and South Korea run some of the largest oil deficits globally, consuming roughly 5.6 million barrels per day (mbpd) and 2.5 mbpd respectively while producing very little.

Taiwan and Thailand are similarly exposed relative to the sizes of their economies.

Beyond Asia, Turkey and Poland face meaningful headwinds, with oil deficits close to 1 mbpd and 0.7 mbpd respectively. We have been cautious on these markets and have moved more underweight this month.

China

Although it is a major oil importer, China is relatively resilient.

Domestic demand is weak. Its electricity system, and to a lesser degree its transport system, are heavily decarbonised.

Crude stockpiles are large (estimated at 1.20-1.4 billion barrels) and imports from Russia (and even potentially Iran) provide supply flexibility.

Significantly, Chinese bond yields have fallen since the start of the war. We have become more positive on the outlook for Chinese equities relative to other Asian markets.

Energy exporters

The key opportunity for emerging markets investors lies with non‑GCC energy producers.

Latin America stands out.

Brazil produces around 4.5 mbpd versus consumption of 3.3 mbpd. Mexico, Colombia and Argentina are also net exporters.

We have been highly positive on Brazil and positive on Mexico and maintain our overweight positions.

South Africa is a net importer but is partially cushioned by its status as a major coal producer and limited coal‑to‑liquids capacity (about 150 kbpd), reducing the GDP impact to around 0.5%. We retain our small overweight position.

GCC countries

In the GCC, Saudi Arabia and UAE continue to export reduced volumes via pipelines at much higher prices but are sustaining a significant number of attacks from Iran.

We have reduced our overweight position in UAE to recognise the economic risks from the continuing conflict.

Opportunities

With very high volatility and actual supply constraints in many critical commodities, the outlook for large parts of the global economy and global financial markets is uncertain.

However, it’s important to recognise the great opportunities in emerging markets that are exporting at higher prices, and also in China, where farsighted policy choices should lead to strong relative outcomes.

About Pendal Global Emerging Markets Opportunities Fund

James Syme, Paul Wimborne, Ada Chan and Roshni Bolton are co-managers of Pendal’s Global Emerging Markets Opportunities Fund.

The fund aims to add value through a combination of country allocation and individual stock selection.

The country allocation process is based on analysis of a country’s economic growth, monetary policy, market liquidity, currency, governance/politics and equity market valuation.

The stock selection process focuses on buying quality growth stocks at attractive valuations.

Find out more about Pendal Global Emerging Markets Opportunities Fund here
 
Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.

Contact a Pendal key account manager here

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

• Find out about Pendal Focus Australian Share fund

THE market is oscillating between de-escalation rhetoric from the US and escalatory bombing actions, such as Iranian nuclear and steel making facilities being hit on Friday night.

Last week, optimism that a fairly rapid end to the conflict would minimise economic damage from high oil prices and damaged confidence gave way to concerns about the likely negative impact from high energy prices.

President Donald Trump’s extension of the deadline on Thursday for opening the Strait of Hormuz could not hold back further equity selling on Friday.

The S&P500 finished down 2.1% for the week – its fifth straight week of losses and the worst weekly losing streak in about four years.

It has fallen an average of 0.3% per day since the war began, but the intraday swing from high to low has averaged 1.3%, adding to investor consternation.

The Nasdaq was -3.2% for the week, has now fallen for 10 of the last 11 weeks, and is in correction territory.

The S&P/ASX 300 was up 1.0% for the week, helped by a rebound in resource stocks.

Equity market sentiment indicators took a leg down last week, after being fairly muted for the previous three weeks.

The situation in the Middle East remains binary – it could easily get a lot worse but equally could see an improvement in sentiment very quickly.

The issues arising from the conflict are exacerbated by inflation in many countries having either stalled above levels that central banks are comfortable with (e.g. US) or having been on an upward trajectory (e.g. Australia).

There has been a rapid reversal across many developed and emerging market economies from an expectation of rate cuts to rate hikes.

This means a key underpinning of the supportive rate cutting/cyclical upswing upside scenario has moved very quickly to become a significant headwind.

For example, expectations for US rates have moved from 50 basis points (bps) of cuts in CY26 to circa 8bps of hikes.

On the AI front, documents leaked from Anthropic talked about the company’s next model (codenamed “Capybara”) and its enhanced capabilities. The documents said that “compared to our previous best model, Claude Opus 4.6, Capybara gets dramatically higher scores on tests of software coding, academic reasoning, and cybersecurity, among others.”

Macro and policy Australia

February’s consumer price index (CPI) was modestly below consensus expectations, with headline flat month/month and +3.7% year/year (versus +3.8% expected) and trimmed mean +0.2% month/month and +3.3% year/year (versus +3.4% expected).

However, this is largely irrelevant given the shift in energy prices in March.

Consensus expectations for 1Q 2026 quarterly inflation have moved up to ~1%, from 0.90% previously. The 30% rise in fuel costs will drive up headline inflation in the coming months.

The Roy Morgan-ANZ weekly consumer sentiment has plunged back to Covid lows, accompanied by a surge in inflation expectations. The RBA will be sensitive to any risk of the latter becoming unanchored.

In addition, it is expected that any prolonged fuel price increases will manifest in weaker non-discretionary retail spending.

Goldman Sachs has estimated that a 10% increase in fuel would see a 1.1% hit to retail sales, while a 30% increase would translate to a 3.4% hit, all else being equal.

This has weighed on the domestic discretionary retailers, which are typically down 10-20% since the war began.

Macro and policy US

It was a quiet week for US data. Initial and continuous claims data suggest that labour markets are holding steady for now.

However higher rates have seen mortgage applications down ~10% in each of the last two weeks.

While markets have moved quickly to reprice the expected path of US rates, thus far it does not appear to be pricing a material hit to US growth. The longer the conflict persists, the more fragile this assertion will feel.

Macro and policy Europe

European Central Bank president Christine Lagarde demonstrated the bind that central banks find themselves in. 

“We willnot act before we have sufficient information about the size, persistence, and transmission of this shock,” she noted, “…but we will not be paralysed by hesitation:our commitment to achieving a 2% inflation target over the medium term is unconditional.”

“If the shock gives rise to a large though not-too-persistent overshoot of our target, some measured adjustment of policy could be warranted. To leave such an overshoot entirely unaddressed could pose a communication risk: the public may find it difficult to understand a reaction function that does not react…. Otherwise, self-reinforcing mechanisms would kick in, and the risk of de-anchoring would become acute.”

Energy update

The net impact on global oil flows from the Strait’s closure appears to have improved last week, as an additional 3 million barrels per day (bpd) were redirected through other pipelines.

However, the release from strategic petroleum reserves has been slower than expected.

Goldman Sachs estimates that of the ~20 million bpd of normal Hormuz flows, 6.9 million bpd have been offset elsewhere.

Notwithstanding the net energy surplus position of the US, there is little indication that production is going to ramp to help fill the global deficit.

A Dallas Fed survey of large US oil producers showed that at this stage ~70% are not expecting to change their production in 2026. Less than 10% expect to increase it significantly.

A shift in ownership of oil wells in the US towards larger firms has meant that US oil production is less sensitive to increases in price than has historically been the case.

Our resources analyst, Jack Gabb, was in Perth last week, focused on the diesel outlook for miners. His observations are:

• Despite emerging shortages among independent distributors, the major miners all appear relatively comfortable at this stage.
• For example, BHP has not seen any change in supplies (typically receiving three to four shipments into Port Hedland per week).
• RIO noted concern, but no alarm. The company has a month’s worth of storage capacity and line of sight on another month.
• South32 also has five to six weeks visibility but are a smaller user.
• Stocks outside of the diversified miners are lower, typically with just one to two weeks on site. However, most reported visibility on deliveries from the likes of Ampol and Viva well into May.
• That said, action plans are being drawn up in the event supply is disrupted. For example, by reducing stripping/mining rates, changing rosters and processing stockpiles.

US West Coast tech/AI trip

Jim Taylor spent a week in San Francisco and Silicon Valley meeting with software and AI-related companies including Nvidia.

His key question on supply dynamics was around the major constraints to further data centre (DC) and AI factory buildouts. Here, his observations were:

• The conversation about data centre supply constraints has shifted from GPU hardware to physical space.
• Access to power remains a key constraint with companies developing their own power sources to bridge often long timelines in accessing the grid.
• New microchip technology is increasing the tokens that can be produced per watt of electricity consumed by between two and 35 times. (A token is a unit of text that AI can read and produce).
• Development yields and re-leasing spreads on existing data centre capacity both remain supportive for continued development. The scale of the new builds means that co-financing of projects is becoming increasingly important.

The other side of the question is demand – how is the demand for tokens developing and is there much growth after model training peaks? Observations here were:

• Demand for tokens is driving the revenue of the major large language models (LLMs) such as GPT-4, Claude, and Gemini up by US$1-2 billion per week. Token consumption is up ~4x since January.
• As token cost comes down (and is expected to continue to fall) economically justifiable use cases for extreme heavy token consumption increase.
• Training of LLMs remains a significant and ongoing use case, however inference usage is very much at the infancy of its journey. (Inference can be thought of as the AI model using what it learned in training).

Nvidia

Nvidia is at the core of the AI system and a leader in terms of its direction. Taylor’s key observations here were:

It is going all-in on inference

The battleground from a chips perspective over training LLMs is not over, but Nvidia has made it very clear the company is focused on getting ready for the explosion in inference activity that is coming.

The measure of success in this area will be the efficiency of token production in DCs and AI factories. The key metric will be tokens per second per megawatt (TPS/MW). The DCs are constrained by power and so to create extra revenue need to produce more tokens per MW of power available. Each new generation of chips is producing more tokens at lower costs. Decreasing cost of tokens will be a feature of the industry.

The current generation of hardware delivers 2x the number of users per MW at low levels of interactivity and up to 10x at higher levels of interactivity, compared with the previous generation. Further optimisation of the hardware sees the multiplier at the extreme high end of demand increasing to circa 35x.

The efficiency of production of tokens is critical to opening up the highest-value/highest-cost use cases for deep research into new medicines, training robots and widespread adoption of driverless vehicles, among many other areas of study.

The efficiency of the new generation hardware drives volume of production of tokens per unit of power, which creates additional revenue opportunities to sell that volume at better margins.

Open-source models

Nvidia is driving token usage through the provision of open-sourced models across the spectrum of autonomous driving, robotics, biology and a number of other fields.

Open-source models encourage companies to engage in research in these fields by not requiring them to begin at ground zero. This drives demand for tokens and Nvidia hardware and software.

The company’s Omniverse simulation platform allows manufacturers to build physics-based digital twins of factories and run real-time simulations. This can materially reduce production planning cycles and support more autonomous decision making on the factory floor.

Neocloud Providers (NCPs)

Nvidia is supplying NCPs with access to the whole stack of hardware and software to create demand tension with the hyperscalers.

It also provides Nvidia with access to low-cost tokens for its own internal usage. Nvidia is taking equity stakes in these businesses. It offers the NCPs a very low risk entry into the AI factory world.

The rise of Physical AI

Given the scale of manufacturing, healthcare, transport, logistics within global GDP it is no surprise that AI in the physical world is expected to dwarf the scale of AI in the IT world. Think of physical AI as AI + sensors + actuators + real world feedback loops.

While it may not be attracting all the headlines like the LLMs, there is a great deal of activity happening below the radar. For example, Jeff Bezos is trying to raise an AI manufacturing fund of $100 billion which will buy up manufacturing businesses to integrate them with AI. He has also founded a start-up called Project Prometheus – his first CEO position since 2021 – to develop AI for engineering and manufacturing (cars, aerospace, electronics, and more) with $6.2 billion in reported funding as of November 2025.

Tesla has flagged that the training of Optimus (a humanoid robot) will require ~10x the compute of that required for Cybercab, providing some insight into the scale of compute that is going to be required for global physical AI development.

Tesla is saying that it is targeting 30c/mile in total costs for the Cybercabs it is just launching. This compares to costs of running the Model Y of about 72c/mile and the cost of catching an Uber of about $2.50/mile. Thus, Cybercabs may be one of the first use cases with compelling transparent economics that prove up the bona fides of AI.

Other, broad observations from the research trip:

Be careful extrapolating the pace of AI/Agent deployment at tech companies to the broader economy. The speed of adoption at Microsoft or Block is not representative of the broader enterprise or consumer adoption curve. Mid-market and core economy companies are two to three years behind. Native AI/Cloud-based organisations have inherent advantages in terms of data being centralised and easily accessed, which materially reduces lead times for software development. Most enterprises are still busily cleaning and centralising their data to allow interrogation.

First-party data, properly exploited with AI/machine learning tools, is the nirvana outcome. Block’s internal credit bureau and dynamic credit scoring is the exemplar: AI converts proprietary data into a durable competitive advantage where growth is a purposeful journey, not a random walk.

Irrespective of AI, the scope for efficiency and cultural dividends from companies undergoing genuine transformation needs to be front and centre. Expedia, Intel, and Bill.com all offer meaningful operational leverage opportunities that exist independently of AI adoption. The benefit to shareholders of a fresh perspective from new C-suite executives remains a key source of value accretion.

Sales organisations are easier to pivot than start from scratch. Companies with existing channel relationships, sales infrastructure, and customer trust in adjacent markets have a structural advantage in capturing the middle market opportunity over pure greenfield entrants, even those with better technology.

Dealing with large organisations and institutions (“enterprise”) can be incredibly difficult for start-ups. Sales lead times can be long, while the enterprise pain point that the start-up is trying to address and the enterprise IT function are different parts of the business. Enterprise IT is focused on and obsessed with security, privacy and governance, which stretches resources of the new entrant. Wholesale change of customer relationship management is unlikely. Start-ups typically get a sliver of a workflow vertical (e.g. client service) where identifiable deep expertise gets them in the door. They augment, not replace, existing systems. Enterprise sales don’t walk in the door; they need to be curated and nurtured.

Agent identification and security is critical – no-one is letting agents loose in their corporate networks. Security is the unresolved blocker. Zero-trust frameworks for agents are not yet fully developed. Each agent effectively needs a digital identity and a full set of credentials — and unlike a human sitting outside the system, an autonomous agent is inside the system making real decisions. This is actually harder to secure than traditional user access management. IT owns the security concern but is often not the buyer with the pain point. Up until now bots in e-commerce represent malevolence, from here they represent a transactor. Authorisation goes from proving you are human to proving you are a credentialled bot. Identification and credentialling of agents will be a key focus of enterprises and will be a choke point for their adoption.

Software engineering called to account. Claude code exposes the inefficiencies and poor output that was previously thought to be acceptable; the starting point for software efficiency was an unrecognised issue. Software engineers will be hired (and agreeing to employment) based not just on salaries but also token budgets and the rate of burn of the tokens will be the lead indicator of productivity.

The Great Migration. Companies such as HubSpot, Intuit, Bill.com etc are all increasing in size, with higher monetisation of more complex products. The opportunity here seems real, facilitated by the increased cadence of product enhancement/development.

Sovereign AI. Here is an increasing focus on local availability. Complete outsourcing to foreign parties of all DC/hardware ownership and capabilities in country is considered a sovereign risk that needs to be addressed.

Onsite power production for DCs is being positioned as a bridge to grid connection, but is likely to be a permanent feature. 

Central processing units (CPUs) are back in secular growth, as the graphics processing units (GPUs) critical to AI need a lot of CPUs around it. CPUs also have an energy efficiency dividend to come.

The funding environment has fundamentally changed. In 2021–2023, a former OpenAI or Google DeepMind employee could get a venture or private capital term sheet with no business proposition. Now they need to turn up with a product. Many businesses in the pipeline are in limbo with low likelihood of getting funded. Start-up founders face a binary decision. Those with some funding but not enough to compete with well-funded leaders face a choice: push on with reduced resources and clear milestones or shut down. The days of bridge rounds and extended runways on a hope are largely over.

Are OpenAI/Anthropic friends or foes for traditional business models? The encroachment by the LLMs is something that the market has been very focused on. There are differing views on the nature of the LLMs, with people generally considering Open AI the most commercially driven business (deploying capital, spawning businesses) to Anthropic/GDM who are more focused on solving the scientific complications on the way to artificial general intelligence (AGI). They are pursuing commercial ends to create funding to solve the problems. Expedia, Intuit, Xero and many others have agreed deals with the LLMs. The market is unsure as to the balance of power between the parties, with the LLMs bringing a new distribution channel (1-2% of volume currently) and the companies striving to safeguard their data and IP.

Markets

Gold

Gold has had a positive correlation with equities, rather than acting as a safe-haven offset like US government bonds since the start of the war.

It has dropped over 14% since the start of the month, in significant contrast to prior periods of equity stress.

It has been flagged that around 83 tons of ETF holdings remain loss-making even at $4,500/oz and are hence susceptible to further liquidation, with 85 tons already redeemed since the conflict began.

The put/call skew on the largest gold-backed ETF hit a six-year high last week.

Turkey’s central bank added to the pressure, selling and swapping around $8 billion of gold in the two weeks following the outbreak of war.

It did hold up better than the equity market at the end of last week, though whether we have seen the peak gold price for this cycle remains a key area of debate.

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About Jim Taylor and Pendal Focus Australian Share Fund

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

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

Find out more about Pendal Focus Australian Share Fund here.

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

A month ago petrol was $1.75. Today it’s $2.45. So how relevant was the February monthly inflation print? Pendal’s head of government bond strategies TIM HEXT explains

• Find out about Pendal Government Bond Fund
• Browse Pendal’s fixed interest funds

WHAT did we learn from the February monthly inflation print?

And what does it mean in the context of war in Iran?

Monthly headline Consumer Price Index data was flat compared to January. On an annual basis, prices have risen by 3.7% since February 2025 – slightly lower than expected.

On a trimmed-mean basis CPI rose 0.2% or 3.3% year on year.

Non-tradeable prices are up 5% year on year while tradeables only rose 1.3%.

The graph below shows year on year CPI between January and February:

Education was the main contributor – which isn’t surprising since February is when annual school and university fees rises are measured.

Overall, as the graph above shows, the rises were similar to last year despite falling wages and inflation.

Tertiary fees only rose by 2.2% (since they’re indexed), but no one told secondary private schools about lower inflation, as they again pushed prices up by 6.6%. Oh, to have such a captive client base.

Travel prices fell, but this is a usual post-school holiday move.

The only other bit of good news was new dwelling costs, which make up 7.5% of the CPI basket, only went up 0.1%. They are now 3.7% higher than a year ago, but the 0.4% a month pace of late last year has now moderated.

Excluding volatile electricity prices, housing inflation overall seems to be topping out nearer 4%. This is a bit high but not uncomfortably so.

Market response

The market barely budged on this number. Without the Middle East noise, it would have caused a small rally in rates, but everyone remains fixated on oil prices.

We have seen a bounce in rates since Monday and the market is now closer to two, not three, more hikes.

Inflation over March

Q1 2026 CPI (and March CPI) is released at the end of April, just before the next RBA meeting in early May. The March rate hike takes some pressure off the RBA to move in May.

Assuming the current $2.47 fuel price remains to month end it will see fuel prices up 28% in March. Should they stay there through April to June that would see fuel prices up 30% in Q2 over Q1. The news is even worse for diesel and jet fuel.

Fuel directly accounts for only 3.3% of CPI but clearly the costs feed indirectly across a wide number of goods and services.

Headline inflation in March is likely to hit nearly 4.4% on a year-on-year basis. This would mean headline inflation for Q1 is closer to 1.2% and trimmed mean around 0.9%.

Market pricing

These Q1 CPI numbers would lean towards another rate hike in May. However, there is so much going on before early May that current pricing of a slightly higher than 50% chance of a hike seems fair.

Ultimately it will be all about balancing the ‘stagnation’ and ‘inflation’ in stagflation.

In longer bonds we still view 5% as a good medium-term buy, although seeing levels briefly hit 5.2% on Monday did test our conviction. Volatility is here to stay.

If you’d like to hear more about how Pendal’s Income & Fixed Interest team is positioning for this environment, please contact us through our accounts team

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

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

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

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

Find out more about Pendal’s fixed interest strategies here

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About Pendal

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

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

Contact a Pendal key account manager

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

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

THE Middle East conflict escalated further last week, with direct attacks on critical energy infrastructure across Iran, the UAE and Qatar, alongside ongoing disruption to shipping through the Strait of Hormuz.

The result is a significant tightening in global energy markets, with second-order impacts feeding into broader commodities.

Markets have responded by pricing a more prolonged disruption – lifting energy prices and inflation expectations – although recent commentary from US President Donald Trump around potentially “winding down” operations has yet to translate into any de-escalation.

Comparisons to 2022, when the Ukraine conflict began, are less helpful in this environment. The starting point today is materially different – with less fiscal support, higher interest rates and a more fragile labour market – while the scale of the supply shock is larger.

This increases the risk that the shock becomes growth-destructive if sustained.

So far, markets remain primarily focused on inflation and policy risk, implicitly assuming the conflict will be relatively short-lived. The key risk is duration. The longer the disruption persists, the greater the likelihood that higher energy prices drive demand destruction and weigh on global growth, creating more meaningful downside for risk assets.

Early signals are emerging in pockets of the market. Copper fell 6.5% on the week, but broader indices have not yet priced a more bearish outcome, with the S&P 500 down 5.3% month-to-date and the S&P/ASX 300 down 7.9%.

Year-to-date, positioning has rotated toward hard assets. The question now is whether a deterioration in global growth drives a reversal back toward capital-light businesses.

We see limited signs of this so far, but it remains a key dynamic to watch over the weeks ahead.

Iran conflict

Only three weeks in and the Iran conflict has already resulted in the largest oil supply shock on record.

The risk to global oil markets from persistent production losses in Iran and the broader Middle East could be significant, accounting for 4% and 26% respectively of 2025 production.

Gas markets are at the centre of the shock. Damage to Qatari liquefied natural gas (LNG) infrastructure – which accounts for approximately 18% of global supply – represents the most consequential single development of the week.

Iranian strikes on Qatar’s Ras Laffan complex knocked around 12.8 million tonnes per annum offline, equivalent to 3% of global supply and 17% of Qatari exports, for an estimated three to five years, according to QatarEnergy’s chief executive. As a result, Jefferies now estimates 2026 LNG supply growth will stall to below 1% year-on-year, versus prior expectations of around 9%.

Oil markets are tightening, but headline benchmarks understate the severity.

Brent crude has risen to around US$110 per barrel, yet regional benchmarks in Dubai and Oman are already trading closer to US$160 per barrel, highlighting acute tightness across Asia.

The divergence reflects the geographic concentration of the shock in the Middle East. As inventories in the Atlantic Basin are drawn down, global benchmarks are likely to reprice higher to reflect true scarcity.

At the same time, demand destruction is beginning to emerge, particularly in refined products. Diesel shortages are disrupting freight and travel, governments are implementing demand management measures including reduced work weeks and mobility restrictions, and jet fuel prices of around US$200 per barrel are forcing airlines to cut capacity.

Notably, even if crude supply recovers, refined product tightness may persist. Refineries that have run out of feedstock take time to restart, and disruptions to medium and sour crude force refiners into less efficient substitutes, with the impact most evident in diesel and jet fuel.

Australia imports approximately 85% of its liquid fuel requirements, sourced primarily from Asian refining hubs. The remaining 15% is produced domestically by two refineries in Victoria and Queensland.

As of 10 March, Australia held approximately 37 days of petrol, 29 days of jet fuel and 30 days of diesel in stock – among the lowest fuel stockpile levels of any country globally.

The government has responded by releasing up to 20% of its Minimum Stockholding Obligation (MSO) fuel reserves, relaxing fuel standards to boost petrol supply, and increasing scrutiny of industry participants.

Despite low stockpiles, Australia is comparatively well placed to manage fuel shortages, owing to strong import supply chains, high economic capacity to pay, and its leverage as a net energy exporter.

Six of 81 average monthly fuel tankers have been cancelled to date, though some have already been replaced with alternative sources.

We have been engaging with domestic refiners, who are confident that the majority of market participants should have sufficient finished product to last through at least April. We regard government intervention or formal product rationing as the option of last resort.

Should the crisis persist and broaden into a global oil shortage, Australia’s risk exposure increases.

Asia-Pacific refiners are heavily dependent on Middle Eastern crude, and there are reports that some Asian refineries have already begun reducing processing rates to ration throughput. China reportedly banned exports of refined products last week – Australia is most exposed on the jet fuel side, sourcing approximately 30% of its supply from China.

Metals markets are also increasingly reflecting the growth shock. Base metals have rolled over, with copper down approximately 6.5% on the week – a signal of rising concern about demand destruction.

Precious metals have seen a sharp reversal, with gold down around 9.5%, driven by a combination of positioning unwind, higher rate expectations as energy drives inflation risk, and broad-based cross-asset de-risking.

The broader question for gold is how central banks globally will respond.

Their motivation in accumulating gold since 2022 was never simply to maximise holdings – it was to have a reserve asset that could be deployed to acquire critical goods and defend the FX rate in times of crisis.

At the same time, this crisis arguably reinforces the long-run case for diversifying away from US dollar-denominated reserve assets.

Inflation

The Iran conflict is transitioning from a pure supply-driven energy spike to a broader macro event.

As energy feeds through to inflation while simultaneously weighing on growth, markets are increasingly being forced to price a more complex policy trade-off, setting up a more volatile backdrop for rates and risk assets.

Prices at the pump have risen substantially. In the US, the national average price for regular gasoline has increased approximately 31% in March month-to-date.

Jefferies estimates that higher energy prices will add around 80-100 basis points (bps) to the monthly consumer price index (CPI) reading in March 2026, and a further 20-50bps in April, lifting headline CPI from 2.43% in February to an estimated 3.45% in March and 3.8% in April – well above the Federal Reserve’s 2% target.

The surge in pump prices and other energy goods will add meaningfully to US household costs, representing around 2% of total consumption.

Jefferies estimates an increase of around US$12 billion in March and US$17 billion in April relative to January levels.

Tax refunds under the One Big Beautiful Bill Act provide a partial offset, but the relief is skewed to mid-to-high earners, while the bottom 10% of income households spend 3.7% of their income on gasoline and are disproportionately exposed to the price rise.

Fertiliser trade has also been disrupted: approximately 30% of global seaborne fertiliser trade passes through the Strait of Hormuz, and urea futures are up 30-55%.

As with the Ukraine war, food inflation is likely to accelerate from here, representing a further headwind to CPI globally.

US macro and policy

New home sales fell to 587,000 in January 2026, well below consensus expectations of 722,000. While the shortfall was partly driven by snowstorms across the Northeast and Midwest, underlying weakness is also evident – mortgage rates remain unaffordable for many buyers and consumer confidence is soft.

Pending home sales rose a modest 1.8% in February, consistent with a subdued market and suggesting 2026 will be another lacklustre year for US housing.

There is little sign of the oil crisis affecting employment so far. Initial jobless claims fell to 205,000 last week (from 213,000 the prior week) as the effects of late-February snowstorms unwound.

That said, early indicators of hiring intentions are softening, with the Indeed and LinkUp measures of job openings each dropping approximately 1% since the end of February, suggesting uncertainty is beginning to weigh on employers.

February PPI data came in above expectations at +0.7% headline and +0.5% core – arguably already stale given it predates the conflict, though items feeding through to the Fed’s preferred PCE inflation measure were modestly softer than expected largely due to weaker health services inflation.

Markets have quickly adapted to price the conflict and higher energy as a more persistent feature of the landscape, shifting from pricing almost three rate cuts in 2026 to the possibility of a further rate increase.

The Federal Reserve held rates steady last week, but its commentary was slightly more hawkish than expected.

For the Fed to seriously consider hiking, it will likely need evidence that core inflation is moving higher and that the labour market is holding up. Bank of America estimates the critical threshold is WTI crude oil averaging US$80-100 per barrel for the remainder of 2026.

Australia macro and policy

Australia has now seen its second rate increase of the current cycle, with the Reserve Bank of Australia (RBA) raising the cash rate by 25bps to 4.1%, slightly above the 17bps the market had priced.

While the vote was close (5-4 in favour) and the framing was cautious, the substance was hawkish. The board reiterated that “inflation is likely to remain above target for some time” and added that “risks have tilted further to the upside, including to inflation expectations”.

We regard it as more likely than not that the RBA raises rates a further 25bps at the May 2026 meeting.

The domestic labour market continues to support this outlook. Employment grew by 49,000 in February, well above consensus expectations of 20,000, and the three-month trend is now the fastest since May 2023. The unemployment rate edged up 0.2% to 4.3% as labour force participation rose, but it remains below the RBA’s estimate of the non-accelerating inflation rate of unemployment (NAIRU) of 4.5% and is unlikely to soften the board’s view that conditions remain tight.

Markets 

Market activity remains elevated, but investors are increasingly reducing risk rather than adding to it.

US equities were net sold for a fifth consecutive week, driven primarily by short selling across both single stocks and macro products, with short sales outpacing long buying by roughly three to one.

Selling was broad-based, with 10 of 11 sectors seeing net outflows and cyclicals leading the move lower, while gross leverage declined for a second straight week.

Investor sentiment has turned bearish, and fund manager cash levels have risen to 4.3% – the largest monthly increase since the onset of COVID.

This points to a deliberate de-risking phase rather than a sharp, panicked sell-off.

Overall exposure remains reasonably high, and investors continue to trade actively, but positioning is being recalibrated through reduced gross leverage and increased short activity, with a clearer bias toward downside protection.

Rather than reacting to a single shock, investors appear to be adjusting portfolios to a more uncertain macro environment in which geopolitical risks are feeding into rates volatility and complicating the growth outlook.

Systematic, trend-following strategies remain a headwind as they continue to sell, albeit at a slower pace. Goldman Sachs estimates that commodity trading advisors (CTAs) have continued net selling in the near term.

In contrast, ETF flows into software stocks have remained resilient, with rising shares outstanding indicating that real-money investors are beginning to re-engage, a pattern typically associated with early-stage bottoming rather than a confirmed recovery.

Gold flows have moved in the opposite direction, with sustained ETF outflows highlighting an ongoing unwind of what had been a crowded defensive position, even as geopolitical risks continue to rise.

Rising bond yields and liquidity needs appear to be outweighing safe-haven demand.

In Australia, the domestic energy and utilities sectors outperformed, along with defensives including communication services and consumer staples.

Low Volatility and Yield factors also outperformed, while Growth and Momentum came under pressure.

Four of the six best-performing S&P/ASX 100 stocks for the week were directly linked to higher oil prices, while nine of the 10 worst performers were resources companies, reflecting the sharp fall in base metals.

AI and technology

NVIDIA’s GTC developer conference last week featured a keynote from chief executive Jensen Huang that reinforced the scale of the opportunity ahead for the company.

The key message was that AI demand is not slowing but evolving, with a clear shift from model training to inference driving more persistent and scalable compute requirements.

NVIDIA is increasingly positioning itself as a full-stack infrastructure provider rather than solely a chip company, while the emergence of agentic AI and ongoing constraints across power, networking and storage suggest the build-out of AI infrastructure remains in its early stages.

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About Elise McKay and Pendal Australian share funds

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

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

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

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

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

Contact a Pendal key account manager here

Carbon metrics play a growing role in fixed income portfolios, but the headline numbers are often only telling part of the story. Pendal sustainable finance and impact investing director MURRAY ACKMAN explains

• The value of carbon data in bond portfolios
• What the headline numbers are really revealing
• Find out more about Pendal’s Responsible Investing capabilities 

CARBON numbers have become a staple of investment reporting. In fixed income, though, the headline figures can hide as much as they reveal.

Carbon metrics are now firmly embedded in how investors think about climate risk.

From portfolio reviews to net zero reporting, simple numbers like Weighted Average Carbon Intensity (WACI) are increasingly expected across asset classes.

But in fixed income, those familiar figures don’t always behave the way investors expect.

That doesn’t mean carbon data has no value in bond portfolios. It does mean the numbers need to be read with care.

One of the biggest differences lies in who bond investors lend to. Fixed income benchmarks typically include large exposures to governments and semi government issuers.

These entities don’t earn revenue in the same way as companies, which makes standard carbon intensity calculations difficult, and sometimes impossible, to apply.

The practical result is that a meaningful part of many fixed income portfolios is often excluded from headline carbon metrics.

What looks like a portfolio-wide figure may, in reality, reflect only a subset of holdings.

Comparisons between portfolios can end up saying more about what’s been left out than about climate risk or emissions outcomes.

Data gaps add another complication. Many bond issuers are unlisted or privately owned and face fewer disclosure requirements than listed companies. Carbon data coverage is therefore patchier in fixed income.

Where data is missing, issuers are commonly excluded and the remainder scaled up. This can give a small number of holdings an outsized influence and make reported numbers less stable over time.

Even where data exists, the way carbon intensity is calculated can produce counter intuitive results.

Revenue based measures can swing sharply when revenues change, and scaling partial data up to a single number can create a sense of precision that the underlying information doesn’t really support.

Fixed income also has features that issuer level carbon metrics struggle to capture.

Use of proceeds bonds, such as green, social and sustainability bonds, allow capital to be directed to specific projects, often with ring fenced financing and dedicated reporting.

Yet conventional carbon metrics typically ignore how proceeds are used, treating all bonds from an issuer the same. A bond funding renewable energy can therefore look no different, from a carbon perspective, to a standard corporate bond.

Parent company mapping can further distort outcomes. When issuer level data isn’t available, some datasets apply emissions from a parent group instead.

In fixed income, this can overstate carbon exposure, as investors are lending to a specific issuing entity, not the wider group.

What this means

Carbon metrics still have a role in fixed income, but they work best as part of a broader conversation.

Coverage matters. So does transparency about what’s excluded, whether portfolios have been reweighted, and how data gaps are handled.

Looking at allocations to sustainable labelled bonds and understanding where capital is actually being deployed can provide more useful insight than a single headline number alone.

Investors should look through the concerns occupying markets right now as pockets of opportunity are emerging. Pendal’s head of equities CRISPIN MURRAY explains where to look

• Volatility is creating opportunity
• Risks are rising unevenly
• Find out about Pendal Focus Australian Share fund

INVESTORS should keep focus on the opportunities opening up across the ASX as global disruption leads to short-term market selldowns, says Pendal’s head of equities Crispin Murray.

Markets tend to take a very short-sighted view of global risk events, extrapolating near-term news flow without considering how businesses adapt to new circumstances, says Murray.

That means events like conflict in the Middle East, energy supply chain disruptions and the ongoing roll out of artificial intelligence tools can lead to mispricing, creating opportunities for investors willing to look through the short-term noise.

“Markets are short term – they don’t think about how things may change,” says Murray.

“Whenever you have confusion, uncertainty, you tend to get liquidation in markets, which creates significant mispricing and therefore opportunity.”

Murray was speaking at Pendal’s bi-annual Beyond the Numbers webinar.

Energy shock

Murray says the most immediate issue facing global markets is disruption to energy supply from the conflict in the Middle East.

He estimates that between six and eight million barrels of oil a day are not reaching the market, while refinery outages are creating even more pressure in refined products.

Investors need to remember that energy disruptions have a broader impact beyond big fuel users like airlines.

“This is about a lot of companies that have freight as a key input cost or use other oil related products like plastic,” he says.

“So there will be potential earnings impacts the longer this persists.”

A wide range of commodities are dependent on Gulf suppliers, including key fertiliser inputs. Fertiliser supply constraints could impact crop yields and ultimately lift food prices, says Murray.

“That takes longer, but it is a material effect on inflation,” he says.

Supply disruptions to LNG – where Qatar represents around 20 per cent of world seaborne supply – could also be a threat to global markets.

“LNG has a very material effect in terms of power supply for Europe and also for countries like Korea, Japan and Taiwan,” says Murray.

“There may be rationing of power, and that can affect a broad range of industries, including, for example, semiconductors.”

Even if the conflict resolves quickly, supply disruptions will continue to manifest through the year, meaning investors should expect a higher oil price for the remainder of 2026.

AI repricing

Murray says the other big theme driving equity markets is AI, particularly the effect of AI-assisted coding on how investors assess software businesses.

Recent AI product launches have raised legitimate questions about the durability of some software and platform business models, contributing to a sharp derating in those stocks globally and in Australia.

“The launch of Claude Cowork made the user interface of developing software a lot easier, and the various plug-ins related to things like law and finance,” says Murray.

“The market very quickly saw this as a watershed moment in terms of eating into the competitive moats of a lot of industries.”

But he says assuming the sector is in structural decline it would be a mistake.

“We move from a world where, effectively, humans act as a constraint on the work that can be done… to a world where agents work with agents.

“That creates an exponential development curve that allows things to be done far quicker and far cheaper than before.

“But these franchises are more complicated than just simple software code.”

Established companies retain advantages in customer workflows, access to data and distribution moats that could protect future earnings, he says.

That means the market’s indiscriminate sell-off of software stocks is probably more than the underlying fundamentals justify.

“There is no doubt that uncertainty means that the level of valuation that these stocks have previously traded at is unlikely to be recovered,” he says.

“But we also believe that currently, what we’re seeing is sort of a liquidation of a lot of these positions, and it’s creating potentially some opportunities.”

Contained credit risk

Murray said the third major theme in markets right now is a growing concern about private credit, especially where heavily leveraged businesses are exposed to the same AI-related pressures affecting parts of the software sector.

He said some losses are likely to emerge and liquidity may tighten in parts of the market. Even so, he does not believe the problem is broad enough to destabilise the wider economy.

“We do think we will see fallout,” he says.

“But we don’t believe that the size of it is such that it will create systemic issues.”

Finding value

Murray says for all the concerns, investors should remember that the global economy, particularly the US, was in good shape before the latest Middle East shock.

“We were seeing growth picking up, inflation under control, interest rates gradually falling, earnings growth strong – and that is good for equities.

“The final conclusion is that there is substantial mispricing in this market. There is a lot of opportunity.

“For the patient investor, the investor who takes the medium to long term outlook, there’s going to be some really great opportunities to make money here.”

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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

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

• Find out about Pendal Focus Australian Share Fund

THERE were unprecedented moves in the oil price over the course of last week. In the space of 24 hours, Brent crude round-dripped from ~US$90 a barrel to ~US$120 and then back again.

On one hand, the market started to contemplate the prospect of an extended conflict and disruption to commodity markets, fuelled by bellicose rhetoric from the Iranian regime, attacks on shipping in the Strait of Hormuz and further constriction of refining supply.

On the other were repeated claims from US President Donald Trump that the war was near completion as well as moves by the International Energy Agency (IEA) to release strategic reserves.

The net effect was Brent crude oil rose 11.3% for the week and is up 42.3% for the month to date.

Equities remained volatile but reasonably well behaved. The S&P 500 fell 1.6% and the NASDAQ dropped 1.2%. The S&P/ASX shed 2.6% and is down 5.8% for the month to date.

Iron ore gained 2.8% and aluminium rose 4.0%. Copper fell 0.7% and gold was down 1.8% as the US dollar gained 1.4% on a trade-weighted basis.

Developments in the Middle East conflict

Oil producers in Saudi Arabia, Kuwait, Iraq, the UAE and Qatar confirmed they are cutting oil production and refining output due to insufficient storage capacity and the threat of attack.

• The IEA estimated that 3 million barrels per day (BPD) of refining capacity has been shut due to the conflict – the largest supply disruption in history.
• Saudi Arabia’s Aramco noted that it is meeting customer requirements via inventories but noted severe consequences if the disruption drags on. 
• Iraq noted oil production has fallen from ~4.3 million barrels per day (BPD) pre-war to ~1.8 million.
• Iranian attacks on oil infrastructure are also taking a toll. Bahrain’s Bapco declared force majeure on operations after an attack on its oil refinery.
• The Lanaz refinery in Iraq halted operations following a drone strike, while the Ruwais refinery in the UAE also stopped production as a precaution against attack.

Southeast Asian refineries have also been cutting production due to delays in delivery of crude from the Middle East.

There were reports that Chinese refineries have begun cancelling fuel export cargoes. Sinopec has cut production by 10%.

Malaysia’s Pengerang refinery shut its 300,000 BPD crude refining operation.

Singapore Refining Co has cut back its 290,000 BPD operation on Jurong Island to 60%.

The Strait of Hormuz remains effectively shut as Iran began to attack tankers.

• There has been some speculation that Tehran will let through ships with cargo traded in Yuan.
• There have also been reports of ships making the passage despite the risks, but traffic is nevertheless estimated to be down 97% from pre-conflict levels.
• Saudi has been increasing flow through its East-West pipeline, but this is insufficient to offset the lost volumes through the Strait.
• Rumours that the US Navy successfully escorted a ship through the Strait later proved false.
• There were also reports that Iran has been laying mines in the Strait, although there were mixed messages from the Trump Administration as to whether they thought this was the case. Iran also denied this on Friday.
• Other commodities have been hit by the Strait’s closure. India’s Hindalco suspended sales of some aluminium products due to the effects of the conflict on its supply chain.
• The US launched attacks on Kharg Island, which facilitates 90% of Iran’s energy exports, and President Trump threatened to escalate the conflict with attacks on Iran’s oil infrastructure if the Strait remains closed.

Iran’s leadership remained defiant and signalled that it is prepared to continue the war, threatening that the world should prepare itself for oil at US$200 a barrel.

• A statement from the new Supreme Leader, Mojtaba Khamenei, noted that the Strait will remain closed and that Iran would look to open further fronts in the conflict if the US and Israel persisted with attacks.
• There is some evidence that Iran’s ability to attack neighbouring countries is significantly degraded, with far fewer drone and ballistic missile attacks in recent days. Monday last week saw 15 ballistic missiles and 18 drone attacks, versus around 350 attacks on each of the war’s first two days.

Governments have taken actions to conserve supply:

• Myanmar only allows half the nation’s private vehicles to be on the roads each day.
• The Philippines have shortened the work week.
• Singapore has begun rationing maritime fuel.
• Pakistan has closed schools and Bangladesh its universities.
• The Australian federal government announced it will temporarily allow the use of dirtier fuels to boost supply as it weighs how to support the International Energy Agency’s call to release 400 million barrels of oil without drawing on Australia’s limited stockpiles.

President Trump signalled that the war would not be prolonged, saying that “the war is very complete” and ahead of the initial 4–to-5-week estimated timeframe helping bring the oil price back down. He made similar remarks subsequently.

Signals that various government and organisations would release strategic reserves also helped. The International Energy Agency announced it would release 400 million barrels from its strategic reserve.

Nevertheless, the state of events in the region is such that market expectations around an end to oil supply disruption have been pushed out.

The implied probability of the war ending by 31^st of March fell from 30% at the start of last week to 19% by the end, according to prediction market Polymarket.

The equity market reaction thus far has been consistent with historical patterns. Goldman Sachs noted that in seven major spikes in geopolitical risk since 1950, the S&P 500 has fallen ~4% on average in the first week. They note that it has typically recovered to pre-shock levels within the following month.

Historically, the Energy sector has been an obvious beneficiary of higher crude prices, while Information Technology and Materials have also had a positive correlation. Consumer Staples, Utilities and Financials have the largest negative historical correlation to oil prices.

A key risk for equity markets is the effect of a sustained oil disruption on economic growth and corporate earnings.

Not only would higher energy prices drag, but prolonged uncertainty can also damage corporate confidence.

Goldman Sachs estimate that every one percentage point change in US GDP growth would have a 3.4% impact on S&P 500 EPS.

Prior to the conflict, tax refunds in the US were expected to boost consumer spending in the first half of 2026.

Should the price stay near $100, the gasoline price would be expected to reach ~$3.85 a gallon, which is a dollar above where it was in February, according to Evercore.

This would equate to a $105 billion impost on consumers: 78% of the expected benefits from the One Big Beautiful Bill and offsetting the tax benefit gains for all but the 30%.

The longer the disruption lasts, the more it would amplify the current “K-shaped” trend in US consumption.

Expectations around interest rate cuts have fallen on concerns over higher inflation. Consensus now has only 1.2 cuts implied by the end of 2026.

The threat of higher inflation is also wearing domestically.

It is estimated by Morgan Stanley that each US$10 rise in the price of oil would increase Australia’s headline inflation by 50bps, with the added observation that Australia is starting from a position already above the RBA’s target zone.

While higher inflation would crimp domestic spending power – particularly on discretionary items – Australian households are in a strong position in terms of savings. The saving rate of 16.6% is well ahead of pre-pandemic levels and provides some buffer.

A sustained disruption to outbound tourism could boost domestic tourism, while Australia also receives a positive terms-of-trade impact as a net energy exporter.

Macro and policy US

Inflation

There was attention on the February consumer price index (CPI), given that polls show inflation to be the most important issue for voters ahead of this year’s mid-term elections.

It was in-line with expectations, with headline at +0.3% month/month and +2.4% year/year and core at +0.2% and +2.5% respectively.

Within the components, Energy rose 1.1% month/month and food-at-home prices increased 0.4%. Used car prices fell.

Core services rose 0.27% month/month, with slowing rent increases offset by higher discretionary services prices. Slowing population growth is manifesting in lower rent increases. Airline fares rose 1.4% and may go further on the back of higher oil prices.

Housing

January housing starts were up 7.2% month/month versus a drop of 4.5% expected given widespread snowstorms. However, this can be a noisy datapoint. Building permits – a better indicator – fell 5.4% and are at a five-month low. High mortgage rates and an immigration-led slowdown in population growth are weighing on demand, particularly for multi-family developments.

There are eight months’ worth of unsold new single-family homes, versus a usual average of six months, which is likely to continue the pressure on residential construction.

Corporate confidence

The NFIB Small Business optimism survey index fell from 99.3 in January to 98.8 in February. It reported that the net balance of businesses reporting improved sales over the last three months is at its highest since May 2022.

However, capex and hiring intentions both remain muted, reflecting a lack of confidence in the outlook.

Private credit

There were more potential “cockroach” headlines from the world of private credit.

“Go Easy,” a Canadian sub-prime lender announced a shortfall in earnings due to a sharp deterioration in credit quality.

There were also reports that JP Morgan is restricting lending to some private credit funds after marking down some loans to software companies.

Macro and policy Australia

The NAB Business sentiment index signalled that business confidence remains soft and that labour costs are continuing to fall.

The Westpac-MI consumer survey also pointed to soft consumer sentiment, with elevated inflation expectations.

There was some focus on RBA Deputy Governor Andrew Hauser’s comments ahead of the RBA rates meeting this week.

He noted that the effect of disruption in the energy market on the local economy will depend on the size and persistence of the price shock – which won’t be apparent before they meet on the 17^th.

He noted that failure to act “decisively enough to prevent inflation” would be bad for everyone and emphasised the toxic effect of inflation. However, on the more doveish side he flagged that inflation expectations had not dis-anchored and warned against rushing to a decision to raise rates.

Markets

Measures of equity market volatility have spiked but remain relatively well behaved given the scale of issues thrown at them.

In Australia, large caps (S&P/ASX 50 -2.0%) outperformed small caps (S&P/ASX Small Ordinaries -4.4%).

Energy (+1.6%) outperformed, but not by a huge margin. Information Technology (-6.3%) had been outperforming on signs that the short software trade may have bottomed, but gave some of that back last week.

Financials (-0.4%) held up relatively well, while the prospect of higher rates weighed on Real Estate (-5.0%)

Many US-exposed stocks (such as Amcor, James Hardie, Reliance, Treasury Wine and Orora) were weak on higher oil prices flowing through to costs like resins and freight, as well as an expectation that US demand would decline under the pressure of inflation and higher interest rates.

Bond yields continued to rise on the prospect of higher inflation. US 10-year government bonds rose 14bps to 4.28% and are up 32bps for the month. The Australian equivalent rose 11bps to 4.95%, up 30bps for the month.

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 14 years of its 18-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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