The Point

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.”

Not just cricket: Why our emerging markets experts like India

India may have fallen short in the Cricket World Cup this month, but it’s been on a winning run since hosting its previous world cup in 2011.

Since then the country has changed massively, becoming a more attractive location for emerging markets investors, says Paul Wimborne, who co-manages EM investing at Pendal.

“The most significant changes have been in internet connectivity and digital infrastructure.”

The nation’s Digital India program, launched in 2015, has digitised government services and built national internet infrastructure.

The project is now a blueprint for developing nations, Wimborne says.

“India has always had a strong services export economy based on software and services. This is going to kick things along even further.

“We are going to see huge changes in things like healthcare and digital commerce. Small-to-medium enterprises will have much greater ability to sell online.

“India is going to become an even bigger powerhouse.”

Pendal’s head of income reveals a high-conviction call and a non-consensus view for 2024

This week Pendal’s head of income strategies Amy Xie Patrick was asked in a Bloomberg webinar about her highest conviction call for 2024.

“While markets are pricing in a soft landing, I argued there would likely be a US recession in 2024,” says Amy.

“A lag in the impact of policy tightening has been evident in the slowdown of inflation and wages in recent months.

“This can be seen particularly in shifting trends in the labour market. The most obvious signal is a falling ‘quits rate’, signalling workers are becoming less confident about alternative job prospects.

“In my view, lagged effects will continue to appear in the data next year – and as we all know from history, recessions happen slowly, then suddenly.

“Likely in the second half of next year markets will realise disinflation is no longer immaculate – and is being caused by recessionary forces.”

Emerging markets: UAE’s journey from desert sands to investment oasis

The United Arab Emirates was hit badly by Covid, reporting more cases compared to its neighbouring Arabian gulf states.

That caused a drop in tourism, subdued real estate and higher unemployment.

But it’s since made a powerful recovery and undergone structural reforms that make it more attractive to emerging markets investors.

“The significance of the structural reforms has been underestimated,” argues James Syme, a senior PM from Pendal’s EM team.

Foreign nationals can now live and work in the UAE for a decade and buy property there.

Other reforms have developed Abu Dhabi and Dubai into financial centres. In 2022, the region hosted roughly a quarter of all global IPO volume.

“After taking a thorough look at the UAE’s recovering tourism, trade and oil sectors in the context of deep structural reforms, we moved our position to overweight,” says James.