The Point

Crispin Murray: What’s driving Aussie equities this week

EQUITIES continue to rally even as bond yields rise on the back of the Fed’s “hawkish pause” which held rates steady but added in a second rate rise by the year’s end to the “dot plot”.

The market is not convinced of the need for that hike, with CPI data indicating inflation is coming down.

There has been some good news recently.

ESG is not enough. Investors must work together to protect the planet, says Regnan

Protecting the integrity of natural systems require policy intervention – and investors should advocate for a more holistic and inclusive regulatory approach.

That’s the view of Regnan’s Oshadee Siyaguna who has developed a new framework which explores why conservation efforts have historically failed to achieve their goals – and what the investment community can do about it.

The framework is outlined in a report called Beyond Biodiversity which can be downloaded here.

“Advocacy has to be top of the list for investors,” says Osh, a thematic Investing analyst with sustainable investing leader Regnan.

“Essentially, that means investors standing up and saying policy has not been adequate.

“It’s very clear that it needs to be policy led because as soon as policy changes, everything else will start to fall in line.”

Jim Taylor: What’s driving ASX stocks this week

Each week our Aussie equities team runs through the factors driving the Aussie stock market.

Observations on two major forces stood out in the latest report from PM Jim Taylor – one in the virtual world and one in the physical world.

On the AI mania gripping US markets, Jim noted that last week was the biggest ever weekly inflow into US listed tech companies at close to $US9 billion, according to researcher EPFR.

“That’s about 40% more than the next biggest inflow in 2021.”

Those more invested in the physical world would have noted the Bureau of Meteorology updating its El Niño-Southern Oscillation outlook from “watch” to “alert”.

“This means about a 70 per cent chance of El Niño forming in 2023 – roughly three times the normal chance,” said Jim.

“After three years of high rainfall, the ‘weather ate my homework’ excuse may be taken off the table for many ASX-listed companies.”

The case for bonds as rate hikes push Australia towards recession

Recession talk increased in Australia this week after the RBA’s decision to lift rates for the 12th time in just over a year.

Pendal’s Anna Hong agrees the chance of a recession in Australia is increasing with rate hikes.

That bolsters the case for Australian government bonds, cash and high-grade investment credit, argues Anna, an assistant portfolio manager in Pendal’s Income and Fixed Income team.

Australia is one of only a handful of countries to record a budget surplus this financial year and – not withstanding the threat of recession – remains in good economic shape, she says.

“From an economic perspective, even if things go wrong, the government is in a good position to support the Australian economy.

“Australian banks are world-leading in capital strength. As a result, assets within Australian shores are safer than almost any other part of the world.”

Emerging markets aren’t so different to us – but you’ve got to pick the right ones

There’s a common misconception that emerging markets countries are dysfunctional, war-torn or burdened with significant health or security issues.

“But they’re not that different from us,” says James Syme, who co-manages Pendal Emerging Markets Opportunities fund.

“The main emerging market benchmark has 24 countries in Latin America, eastern and southern Europe, Africa and Asia.

“Generally they are well-run democracies or stable non-democracies with happy, successful economies and large and growing middle classes.”

That misperception presents an opportunity, says James – as long as investors can choose the right countries.

James and his team are now investing in eight EM countries including Brazil, Mexico and Indonesia.

EMs can help diversify risk in global equities portfolios, says James.