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The Point
Quick, actionable insights for investors
Sep 4
Five major ASX reporting season themes | Aussie spending and rate cuts | The countries benefitting from a weaker US dollar
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Aussies are spending again. But what does it mean for rate cuts?
AUSSIE consumers are spending again – that’s the main message from the June-quarter GDP data out this week.
Overall, growth was slightly higher than expected at 0.6% versus a 0.5% forecast. Annually we are 1.8% stronger than a year ago.
But increased consumer spending comes through as a clear trend, notes Pendal’s head of government bonds Tim Hext.
Despite last year’s tax cuts and February’s rate cuts, for a while it seemed consumers were more interested in saving than spending.
However, household spending rose 0.9% in the last quarter, led by a 1.4% rise in discretionary spending.
Now rate-cut expectations have dropped from 100% chance of one cut by November to 90%.
“It does all feed into the idea that the RBA has time and optionality on its side,” says Tim.
“If the consumer gets more confident from here, some may ask if any more rate cuts are needed.”
How to identify emerging markets benefitting from a weaker US dollar
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How to identify emerging markets benefitting from a weaker US dollar
A weaker US dollar is creating support for emerging-market equities – but not all countries will benefit equally.
The US Dollar Index – which measures the USD against other major currencies – is down about 10 per cent this year.
EM returns have historically been strongest when the US dollar is weak, because servicing US-dollar debt becomes cheaper; domestic purchasing power in EMs improves; and cheaper imports help keep inflation under control, creating room for rate cuts.
Still, while EM performance lifts as the US dollar weakens, the effect is uneven and investors should be discriminating in country selection, cautions Pendal’s EM team.
Economies with a current account deficit – common in Latin America and South-East Asia – benefit most from cheaper borrowing, lower imported inflation and stronger consumer demand.
But big exporters that run a surplus such as Taiwan and Korea can face headwinds as their products become more expensive in US-dollar terms.
Crispin Murray: What’s driving the ASX this week?
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Crispin Murray: What’s driving the ASX this week?
Pendal identified five major themes this ASX reporting season.
1. Overall earnings were okay, with similar trends to February in terms of misses and beats. A third of companies beat by 5% or more and 22% missed.
2. Stock volatililty reached new highs on result days, driven by the tone of messaging and revisions. Almost a third of companies experienced stock moves more than three standard deviations away from their average on reporting day.
3. Rating changes were the most material driver of returns. The biggest re-ratings were generally stocks beginning to stabilise or those that affirmed their status as safe havens.
4. Disappointing large caps were hit harder than smalls. The average two-day relative return for industrial large caps that missed consensus EPS by more than 5% was -7.2% for the ASX 100, versus -3.8% for small caps.
5. Domestic stocks generally performed better than internationally-exposed companies.
Amy Xie Patrick: What the Fed’s shift from inflation to employment means for investors
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Amy Xie Patrick: What the Fed’s shift from inflation to employment means for investors
A shift in focus from inflation to employment hints at a likely rate cut in September observes Pendal’s head of income strategies AMY XIE PATRICK
In her latest article, Amy explains how she is positioning Pendal’s income funds in response to these and other global factors.
Pendal profile: Meet Australian equities analyst and portfolio manager Elise McKay
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Pendal profile: Meet Australian equities analyst and portfolio manager Elise McKay
AUSTRALIAN equities have the potential to offer investors a compelling trio of benefits, argues analyst and portfolio manager Elise McKay.
In this video, Elise explains how the Pendal investment process helps her team identify and take advantage of opportunities in Australian shares.
Latest updates from our fund managers
Income and Fixed Interest
Aussies are spending again. But what does it mean for rate cuts?
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Emerging Markets
Emerging markets: Look past commodity exports to countries with strong domestic demand
July 26, 2023
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What’s driving ASX stocks this week?
Here are the main factors driving the ASX this week, according to Pendal portfolio manager PETE DAVIDSON. Reported by investment specialist Chris Adams.
Crispin Murray: What’s driving the market this week?
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Crispin Murray: What’s driving the market this week?
Most people would be aware from last week’s per-capita recession headlines that Australia’s population growth is outstripping economic growth.
But population growth – especially immigration and temporary visas – is also supporting corporate earnings, says Pendal’s head of equities Crispin Murray.
“All up, we’re probably looking at about a 3 per cent rise in the population today versus a year ago.
“People are coming to Australia with money in their pockets, setting themselves up and getting accommodation – which is driving up rents.
“Part of the reason we’re seeing resilience in the top line of companies is because they’re basically driven by nominal GDP, not per capita GDP.”
Population growth is also offsetting the effects of the ‘mortgage cliff’ which forces households into higher, variable mortgage payments as low-rate fixed loans expire, Crispin says.
“With each company we met over reporting season, we talked about the issues facing them and if they were seeing consequences from this mortgage cliff. So far, the consequences are very limited.”
How the biggest election year in global history will affect emerging markets investors
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How the biggest election year in global history will affect emerging markets investors
The US election will take the spotlight in November, but emerging markets investors will need to keep tabs on dozens of other national polls this year.
“2024 has the highest concentration of elections, possibly in modern history,” says Paul Wimborne, a senior find manager in Pendal’s emerging markets team.
“There has already been presidential elections in Taiwan and later this year there will be elections in India, Indonesia, South Africa and Mexico.”
Those countries represent 40 per cent of the MSCI Emerging Markets Index by weight and 1.9 billion people.
Investors will need to consider the ramifications of elections with the potential to affect the global macro environment that matters so much to emerging equity markets.
These include Russia in March and the US in November.
While Israel is not schedule for an election, the emergency government formed after the Hamas attacks may not last throughout 2024.
Crispin Murray: What’s driving ASX stocks this week
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Crispin Murray: What’s driving ASX stocks this week
Most people would be aware from last week’s per-capita recession headlines that Australia’s population growth is outstripping economic growth.
But population growth – especially immigration and temporary visas – is also supporting corporate earnings, says Pendal’s head of equities Crispin Murray.
“All up, we’re probably looking at about a 3 per cent rise in the population today versus a year ago.
“People are coming to Australia with money in their pockets, setting themselves up and getting accommodation – which is driving up rents.
“Part of the reason we’re seeing resilience in the top line of companies is because they’re basically driven by nominal GDP, not per capita GDP.”
Population growth is also offsetting the effects of the ‘mortgage cliff’ which forces households into higher, variable mortgage payments as low-rate fixed loans expire, Crispin says.
“With each company we met over reporting season, we talked about the issues facing them and if they were seeing consequences from this mortgage cliff. So far, the consequences are very limited.”
Pendal’s Crispin Murray reviews the lessons from 2023 and outlook for 2024
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Pendal’s Crispin Murray reviews the lessons from 2023 and outlook for 2024
Most people would be aware from last week’s per-capita recession headlines that Australia’s population growth is outstripping economic growth.
But population growth – especially immigration and temporary visas – is also supporting corporate earnings, says Pendal’s head of equities Crispin Murray.
“All up, we’re probably looking at about a 3 per cent rise in the population today versus a year ago.
“People are coming to Australia with money in their pockets, setting themselves up and getting accommodation – which is driving up rents.
“Part of the reason we’re seeing resilience in the top line of companies is because they’re basically driven by nominal GDP, not per capita GDP.”
Population growth is also offsetting the effects of the ‘mortgage cliff’ which forces households into higher, variable mortgage payments as low-rate fixed loans expire, Crispin says.
“With each company we met over reporting season, we talked about the issues facing them and if they were seeing consequences from this mortgage cliff. So far, the consequences are very limited.”
Dec 13
Positioning for a hard landing | 2024 outlook for bonds, credit, cash | Caution on home bias | Opportunities among M&A deals
Aussie equities: Why it’s smart to take the long-term view on M&A deals
Newspaper headlines have been full of merger and acquisition activity and associated capital raisings in recent months.
Chemist Warehouse-Sigma Healthcare. Brookfield-Origin. Newcrest-Newmont. Allkem-Livent. Woodside-Santos.
The activity is likely to continue in 2024, especially in the resources space.
Investors haven’t always been impressed with recent deals – but that doesn’t mean there isn’t opportunity, says Anthony Moran, an analyst with Pendal’s Aussie equities team.
“Markets tend to overreact, especially around M&A. That’s exacerbated at the moment with fears that the economic cycle is rolling over.
“Investors are concerned that companies are buying businesses that may have puffed up earnings or been trading on a cyclical peak.
“But if you can do the work on the acquired businesses and start to get an understanding and more informed perspective on the probability of the success of a deal, then a sell-off can be quite an attractive investment opportunity.”
Fixed income: Pendal’s 2024 outlook for bonds, credit and cash
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Fixed income: Pendal’s 2024 outlook for bonds, credit and cash
What lessons can fixed income investors take from 2023 into 2024?
Pendal’s head of income strategies Amy Xie Patrick sat down with fellow PMs George Bishay, Steve Campbell and Tim Hext to review the year.
We encourage you to read the full article, which covers the outlook for bonds, credit and cash. Some quotes:
Tim: “My framework for 2024 is for falling inflation and yields. Though I’ll be flexible since it likely won’t be a straight line down.”
George: “You can’t ignore the tail risks out there. I’ve kept to top-quality issuers, stayed in senior positions in capital structures and always had an eye on liquidity when adding risk this year.”
Steve: “I expect the cash rate to remain unchanged over 2024, though with bouts of volatility.”
Amy has the odds of a US recession at two-thirds in 2H 2024. “Consider rotating back into fixed income and cash – and look for good active management,” she says.
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