The Point

Amy Xie Patrick: China, the US, and the value of uncertainty

This month’s divergence in US and China rates policies wasn’t just a curiosity for money managers, observes Pendal’s head of income strategies, Amy Xie Patrick.

“It’s a study in contrasts, a reflection of deeper structural differences, and a reminder that policy effectiveness doesn’t always come wrapped in transparency or even democracy,” says Amy in her latest markets analysis.

On May 7, the US Fed left rates unchanged despite growing political pressure. Meanwhile, the People’s Bank of China delivered another dose of stimulus.

“One central bank faced market criticism over its non-committal guidance,” notes Amy. “The other moved swiftly and silently, without needing to justify its decision.

“Perhaps the most contrarian yet valuable takeaway is that less policy guidance may be a good thing.

“By avoiding the hard task of forecasting far into the future, we free ourselves from unhelpful narratives may that turn out to be false.

“By focusing on getting it right rather than always being right, we’re able to preserve the flexibility to change course when the fundamentals change.”

Read Amy’s full article here

Rajinder Singh: What’s driving Aussie equities this week?

Why ASX-listed small caps look set to outperform

The prospect of rate cuts over the remainder of 2025 should continue buoying ASX small caps, argues Pendal PM Lewis Edgley.

Markets are increasingly confident that lower interest rates will help Australia avoid a prolonged economic downturn, with support from strong employment and continued immigration.

That kind of macro-economic background has traditionally been positive for smalls, which are more cyclical and growth-oriented than their larger counterparts – and hence tend to outperform during periods of monetary easing.

“We know from experience that when rates go down, small caps as a category tend to outperform large caps,” says Lewis.

Investors are sometimes turned off by the performance of the benchmark ASX Small Ordinaries index, which has lagged large caps in recent decades.

But the Small Ords is ahead so far this year and there are always good opportunities for active managers with time and resources, he says.

“If you do it well, there’s a huge opportunity to add value and beat the broader market return, while benefiting from diversification.”

Lewis gives an example here

Jim Taylor: What’s driving the ASX this week?

Pendal profile: Meet our Income and Fixed Interest team

The Income and Fixed Interest team discuss the deep expertise, diversity of thought and disciplined decision-making driving outcomes for investors