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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
Emerging Markets
Emerging markets: Look past commodity exports to countries with strong domestic demand
July 26, 2023
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These podcasts are for general information purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. They have been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on the information, consider its appropriateness having regard to their or their clients’ individual objectives, financial situation and needs. The information is not to be regarded as a securities recommendation.
The information in these podcasts may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information in this presentation is complete and correct, to the maximum extent permitted by law neither Pendal nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information.
Any projections contained in these podcasts are predictive and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections.
Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance.
For more information, please call Customer Relations on 1300 346 821 8.00am to 6:00pm (Sydney time) or visit our website www.pendalgroup.com
Tim Hext: What to pay attention to in the RBA’s latest monetary policy statement
When the RBA releases its quarterly monetary policy statement, our head of bond strategies Tim Hext first reads through the forecasts and then goes to the boxes.
“Box A” and “Box B” are typically special interest topics, offering an insight into what our central bankers are discussing and investigating internally.
Box B in the latest statement covers insights from the RBA’s business liaison program, including recent chats with 230 Australian businesses and organisations.
“Box B reveals a growing view that businesses are seeing an easing in demand and costs, consistent with an increasingly neutral RBA,” says Tim.
It also shows businesses expect an easing of wage rises in the year ahead – even though the Wage Price Index isn’t forecast to peak until the end of the year.
“This shows the RBA will likely stare down commentators who talk about higher wages meaning further rate hikes,” argues Tim.
Aug 3
What’s next for rates | Questions to ask in earnings season | No stimulus, but there are still China opportunities | How AI could be a victim of its own success
Elise McKay: The questions to ask this ASX earnings season
ASX earnings season kicks off next week. What should Aussie equities investors be looking for?
Much more than revenue and profit margins, says Pendal investment analyst Elise McKay.
The macro-economic environment will play a big part, predicts Elise.
“In the US, even though companies are delivering better earnings, their share prices aren’t going up on the news.
“The recent market outperformance has been driven by the macro environment, not the earnings.”
Elise says investors should be asking: “Have companies maintained the ability to pass through higher prices? What’s happening to wages? Are further cost reduction programs announced?”
Look out also for how companies are managing opportunities and threats related to artificial intelligence, she says.
Jul 27
How to invest in Hollywood | China’s latest signal explained | Why it’s worth digging into infrastructure | Domestic demand drives emerging markets
Emerging markets: Look past commodity exports to countries with strong domestic demand
Emerging markets investors often focus on commodity-intensive countries – many of which rely on China as one of the world’s top importers.
That may not be an attractive angle right now due to China’s weaker economy.
But it doesn’t mean there isn’t opportunity in the EM space, says Pendal PM James Syme.
Look past commodity export data to identify strong domestic demand stories, says James.
He points to Latin America, where GDP growth and equity market returns are traditionally correlated with commodity prices – especially metals.
“We’re very positive on the outlook for the domestic economies of Brazil and Mexico,” says James. “But not because we’ve got a particularly positive view on metals.”
Both countries should see significant interest rate cuts this year and next, further stimulating what is already quite robust domestic demand.
Amy Xie Patrick: The market’s getting excited about China again, but it may be premature
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Amy Xie Patrick: The market’s getting excited about China again, but it may be premature
THE latest message from China’s top decision-making body caused a stir this week when investors noted softer language on property.
For the first time since 2016, President Xi Jinping’s signature slogan that “houses are for living, not for speculation” was missing from a note that followed a Politburo meeting.
That got the market excited about the potential for a meaningful China stimulus push via the property sector.
But the market is getting ahead of itself, says Pendal’s head of income strategies Amy Xi Patrick.
“The line has likely been dropped because it’s simply no longer needed. Buyers are no longer speculating. They are actively selling in an attempt to exit the property game altogether.”
Amy believes there is no silver bullet for the Chinese economy.
Jul 20
Asset allocation in uncertain times | What’s blunting monetary policy | Why services are weakening | Defining a true social bond
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