The Point

ASX mid caps: Global uncertainty calls for a balanced approach to investing

Right now equities investors are forced to consider a complex interplay of factors when making asset allocation decisions.

“Escalation of tensions in the Middle East has had a tangible impact on energy markets, raising concerns about inflation and causing bond yields to rise,” notes Pendal mid-cap equities portfolio manager Brenton Saunders.

Strong US jobs numbers are contributing to upward pressure on yields, while there is uncertainty about China’s stimulus plans.

“This has sparked a notable rotation in Australia, with investors shifting away from large-cap financials and growth stocks towards resources and value-oriented equities,” says Brenton.

In the face of these competing forces, Brenton emphasises the importance of a balanced portfolio approach.

“Our base view is that markets will remain strong through the end of the year, as interest rates are expected to come down, albeit slightly slower than previously anticipated,” he says.

“[But] it’s important not to have big macro tilts in your portfolio and to be able to produce steady returns through any outcome.”

ASX mid caps: Opportunities amid the noise

“Investing in companies that will be beneficiaries of an ongoing interest rate easing cycle – real estate investment trusts being an obvious one – along with long duration, high multiple sectors, especially the growth stocks, should provide rewards,” says Brenton Saunders, portfolio manager at Pendal’s MidCap Fund.

But that doesn’t mean investors should buy into all interest rate sensitive sectors.

“Discretionary retail is still a tough one to call. Some parts of it are doing really well and others are quite challenged,” he explains.

“Some of the deeper cyclicals, whether they be industrials or resources, will probably take longer to improve in a convincing way. Commodities will depend on the efficacy of ongoing Chinese stimulus, which to date has been unconvincing.”

Read more

ASX mid caps: Keep the faith in dominant trends says Pendal’s Brenton Saunders

Brenton Saunders: What’s driving the ASX this week?

Investing in Asia: The case for Thailand

Stocks in Thailand have disappointed lately for a variety of reasons.

Known as an export base for autos – especially trucks – Thailand has suffered from the advent of electric vehicles.

Tourism – including medical tourism – was upended by Covid and still hasn’t fully recovered. Meanwhile, political uncertainty hasn’t helped.

“Demographically challenged with a comparatively smaller workforce and an ageing population, Thailand faces severe competition from other ASEAN countries such as Vietnam and Indonesia,” says Pendal’s Asian shares PM Samir Mehta.

Samir doesn’t own Thai stocks right now. But cheap valuations prompted him to fly in recently to meet with Thai companies on his watch list.

Thiland is largely a case of “watch and wait” right now, says Samir.

In a new article, he offers a quick overview of the case for investment in Thailand.

Nvidia’s goldmine needs shovel-makers. Here’s one place to find them

Asia does not have an equivalent to the US ‘Magnificent Seven’ tech stocks group.

But a select group of Taiwanese hardware manufacturers can stake claims as the unsung heroes of an AI-driven shift, argues J O Hambro PM Samir Mehta.

Semiconductor maker TSMC is one well known example.  In his latest article Samir outlines another under-the-radar example – Taiwan’s Jentech Precision Industrial.

There is still a great deal of technical development needed in the manufacture of AI chips and servers, Samir says.

Samir describes Jentech Precision Industrial – which he holds in Pendal Asian Share Fund – as “a shovel-maker in Nvidia’s goldmine”.

To reduce the risk of relying on Nvidia’s AI chips, Samir believes other Magnificent Seven stocks could be potential customers for Taiwanese companies like Jentech.

“Many of these Taiwanese firms are the go-to partners of choice with very few alternatives when it comes to leading-edge technologies.”

Brenton Saunders: Three mid-cap themes that ASX investors should consider

Most equities investors know they need to look beyond the ASX50 get better exposure to the fastest-growing industries.

The ASX’s mid-cap space typically covers the 100 biggest companies in the ASX 50-to-150 range.

Three enduring mid-cap themes that should offer good opportunities over time are data centres; transition fuels and decarbonisation; and electric vehicles, argues Pendal PM Brenton Saunders.

“Whether we’re speaking to software-as-a-service companies or corporates, the whole notion of data migration into the cloud and trying to integrate AI into processes at a meaningful level is ubiquitous,” Brenton says. Data centre companies are an integral part of the shift.

A mismatch between the ramping up of renewable power and the decommissioning of old forms of generation also provides opportunities.

“The EV sector finds itself in pain because of over-investment in a bunch of raw materials, particularly lithium,” Brenton says. “But there is absolutely no going back on it.”