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The Point
Quick, actionable insights for investors
Mar 7
Lessons from the latest GDP data | How to invest in troubled times | AI opportunities outside the Magnificent Seven
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AMY XIE PATRICK: How to manage fixed income portfolios in this environment
This week Pendal’s head of income Amy Xie Patrick sat down with head of client solutions Dale Pereira to answer some common investor questions.
A common query is: when rates are higher, why not leave my money in a term deposit?
“For some investors, term-deposit returns on cash are enough,” says Amy. “They’re more than happy to take those returns after years of really slim pickings in this area.
“But the biggest frustration for many investors who chose term deposits over fixed income last year was missing out on the upside. Both bonds and equities outperformed term deposits in 2023.
“This year, locking in 5% term deposits might sound nice at first.
“But you would also be locking up your capital for a year.
“It makes it harder to move your money around when things change, which means you can’t deploy it quickly or easily to buy the dip if we get a decent correction in markets.”
Crispin Murray: What’s driving markets this week?
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Steve Campbell: Rate cuts unlikely before November
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Steve Campbell: Rate cuts unlikely before November
There were no surprises on Tuesday with the cash rate left unchanged at 4.35%.
Though the RBA’s statement was more neutral than February, which prompted a rally in bond yields, notes Pendal’s head of cash strategies Steve Campbell.
Where to next?
“Inflation is falling in line with the RBA’s expectations,” says Steve. It’s expected to hit the 2-3% target zone next year and keep falling in 2026.
The RBA could ease policy before then if inflation is falling sustainably. Though services inflation remains elevated, moderating only gradually.
Any rate change is likely to come at the same time as economic forecasts in the RBA’s quarterly monetary policy statement, says Steve.
The RBA can use those forecasts to justify a change in monetary policy settings or tone.
Forecasts are due in May, August and November.
“Any change to the cash rate is not going to happen in the nearer term,” argues Steve.
“November is more likely than August for any policy easing at this stage.”
Multi-asset: How to manage portfolios when the world’s in turmoil
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Multi-asset: How to manage portfolios when the world’s in turmoil
It can be hard to focus on the health of our investments knowing that many people are struggling for survival in war zones around the world.
Yet amid global geopolitical uncertainty, our responsibility to our family’s future remains.
In his latest article, Pendal’s head of multi asset Michael Blayney offers some tips for managing investments in times of global turmoil.
A few key points:
- Prepare ahead of time: “The last thing you want is something bad happens and then you realise you’re invested in a way that is outside your risk tolerance.”
- Understand your assets and exposures in detail: “For example, if your bond portfolio is heavily exposed to some emerging markets, you might find it’s not as defensive as you thought it would be coming into one of these events.”
- Consider some home bias: “International diversification has lots of benefits. But this environment may support a bit more Australian equities and a bit more exposure to Aussie bonds.”
Nvidia’s goldmine needs shovel-makers. Here’s one place to find them
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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.”
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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.
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Private debt vs. public bonds: why it’s time to re-examine the traditional role of fixed income
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Private debt vs. public bonds: why it’s time to re-examine the traditional role of fixed income
Private credit has its place in portfolios.
So do bonds.
As rates normalise, investors would do well to remember those roles are different, writes Pendal head of income strategies Amy Xie Patrick.
Aussie equities: How Xero and NEXTDC are leveraging AI technology
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Aussie equities: How Xero and NEXTDC are leveraging AI technology
On a tour of the US late last year, Pendal equities analyst Elise McKay met with dozens of companies – and found generative AI was a topic in almost every meeting.
“There’s strong evidence that over the longer-term generative AI will have a big impact across the business landscape,” McKay said at the time.
Six months later, investors are still entranced by the US “Magnificent Seven” tech stocks.
But several ASX-listed companies are making solid progress in leveraging the technology, points out Elise. These include cloud-based finance software maker Xero and data centre manager NextDC – both held by Pendal.
In her latest update, Elise outlines XRO’s “Just Ask Xero” AI assistant and NXT’s Nvidia-based “AI factory” which is expected to launch in coming months.
Elise also addresses one of the big issues that continues to face the AI industry – access to power.
The industry is working on solutions including better computing efficiency, improved cooling technologies and alternative power sources.
Tim Hext: What we learned from the latest GDP data
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Tim Hext: What we learned from the latest GDP data
The December-quarter GDP numbers stopped just short of the “no-growth” scenario we were slowly sliding towards last year at 0.2%.
What were the takeaways for markets?
“First of all, rate hikes have worked,” says Pendal’s head of bonds Tim Hext.
“While the fixed-rate cliff has been more of a speed bump, the RBA will be pleased that higher rates are reducing demand.
“Lower immigration in the year ahead will also help. The supply side of the economy has largely normalised.
“This will give the RBA further comfort that the path back below 3% inflation is achievable.
“This opens the door to rate cuts later in the year. We think three cuts – September, November and December.
“By then the US Fed should be well into rate cuts. Inflation – while sticky around 3 per cent – would be considered under control.
“GDP would be allowed to push back up towards 2% or above without threatening the inflation outlook.
“This would be a good outcome for all and meet the objectives of the RBA.”
Amy Xie Patrick: Outlook from the bond enthusiast
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Amy Xie Patrick: Outlook from the bond enthusiast
What are the main factors impacting income strategies right now?
Pendal’s head of income strategies Amy Xie Patrick has just published a deep dive on how her view has evolved in recent months.
Among Amy’s main observations:
- Consumer resilience has been surprising and may be explained by a rise in real incomes as inflation cools
- This limits the ability of bonds to keep rallying since central banks may be fearful of reigniting a new wave of inflation
- As markets entertain the idea of “no landing”, there could be heightened market volatility and bouts of “everything sell-offs”
- If growth remains resilient these bouts should be short-lived and present opportunities for active portfolios.
- A hard landing isn’t off the table, but it’s too soon to position for it just yet
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