The Point: Professional investing in Australia with Perpetual

An economic recession is highly likely in 2023, says Pendal’s head of income strategies Amy Xie Patrick. How should investors respond?

EXCERPT:

We think an economic recession is highly, highly likely in 2023.

How should investors be positioning their portfolios?

An easy decision is to consider long-duration government bonds, says Amy.

Regardless of whether your view is of a mild or a deep recession, bonds should rally when recessions hit.

This is why being in duration or government bonds should be the crux of your portfolio decision this year.

Compared to the beginning of 2022, government bonds are far more attractive now in terms of the income stream that they can provide, compared to other risky assets like equities.

But it shouldn't be a set-and-forget strategy.

We fear that 2023 will be just as volatile a market environment as 2022.

There will be new fears about whether inflation's really behind us, whether monetary policy tightening is closer to an end or not, and that will drive volatility in both equity and bonds this year.

So putting a larger weight to fixed income and putting it with an actively managed strategy that has proven to be tactical and agile through market volatility will be key.

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Find out more about Pendal's fixed income strategies at pend.al/fixedinterest

Pendal is an independent, global asset manager. Find out more at pendalgroup.com

See omnystudio.com/listener for privacy information.

Internet search has been upended by ChatGPT – an example of “generative artificial intelligence” that can scan existing knowledge and create new and original data such as images, text and music.

Will programs such as ChatGPT bring real, sweeping change to everything we know? Or is it just the next dot com bubble?

Pendal’s head of global equities ASHLEY PITTARD explains in this new Pendal Fast Podcast.

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Find out about Ashley Pittard's Pendal Concentrated Global Share Fund at pend.al/COGS

Pendal is a global asset manager. Find out more at pendalgroup.com

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In our final fast podcast for the year, Pendal’s head of multi-asset Michael Blayney talks about the lessons of 2022, how he’s valuing major asset classes right now and suitable portfolio settings.

Pendal's fast podcast series will return in 2023.

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Find out about Pendal’s multi asset funds at pend.al/multiasset

Pendal is an independent, global asset manager. Find out more at pendalgroup.com

See omnystudio.com/listener for privacy information.

What will prompt central banks to stop hiking interest rates altogether? Look to wages for the answer, says Pendal’s head of income strategies AMY XIE PATRICK

Excerpt:

“The US Fed is looking for inflation not only peaking but coming down very convincingly to its 2% target,” says our head of income strategies, Amy Xi Patrick in her latest fast podcast.

“Wage growth in Australia is only at around about 2.5% to 3%.

“The RBA is comfortable for it to go up to 3.5%, maybe even temporarily to 4%.”

“Wage growth in the US however, is hovering at about 5.5% to 6% percent, which is clearly not consistent with the 2% inflation rate. “

This means inflation will be stickier than the market expects.

Central banks may slow down hikes, but they will be hiking for longer next year than the market currently expects, says Amy.

Higher-quality fixed income assets will help offer some buffer for future volatility, says Amy.

Listen to Amy’s fast podcast to find out how.

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Find out more about Pendal's fixed income strategies at pend.al/fixedinterest

Pendal is an independent, global asset manager. Find out more at pendalgroup.com

See omnystudio.com/listener for privacy information.

There are signs that inflation has peaked and is due to come off in the next few quarters.

That would invariably take us to a position, maybe in Q2 2023, where it looks quite compelling for us to own bonds, says Oliver Ge, an assistant portfolio manager with Pendal's Income and Fixed Interest team.

"At that point you’d already see inflation pressures come off and growth indicators start to materially deteriorate.

"Then central banks will in all likelihood tilt their reaction function to be more benign, more dovish. They're not accelerating, there likely won't be more hikes.

"That environment is conducive to owning bonds. You're looking at returns of five to 6% per annum at that point."

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Find out more about Pendal's fixed income strategies at pend.al/fixedinterest

Pendal is an independent, global asset manager. Find out more at pendalgroup.com

See omnystudio.com/listener for privacy information.

What do this week's Budget and inflation numbers — and next week’s likely 25-point rate rise — mean for 2023?

And how will that impact the role of bonds in portfolios?

Here's a quick explanation from Pendal’s head of government bond strategies Tim Hext.

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Find out more about Pendal's fixed income strategies at pend.al/fixedinterest

Pendal is an independent, global asset manager. Find out more at pendalgroup.com

See omnystudio.com/listener for privacy information.

Bonds can be an appropriate investment in a hiking cycle – as long as you know what to look for, argues Pendal’s head of income strategies AMY XIE PATRICK

Excerpt:

"Even though central banks may need to keep on hiking, now their mantra is very well flagged to the market there is hope that bonds do better in the second half of this hiking cycle.

"It does mean you probably want to look at having bonds in your portfolio as a defensive pillar, more towards the longer end of curves.

"Because the shorter end is directly tied to where policy rates are going. And as we know, nobody has signaled that they're ready to peak and pivot more dovishly just yet."

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Find out more about Pendal's fixed income strategies at pend.al/fixedinterest

Pendal is an independent, global asset manager. Find out more at pendalgroup.com

See omnystudio.com/listener for privacy information.

We’re in an average recessionary market, but that doesn’t mean there aren’t opportunities, argues Pendal’s CHRIS LEES in this fast podcast.

“If you don't think there's a banking crisis coming, then it's actually time to gently start buying again, and that's what we're doing," says Chris.

“We think that we're in a normal recessionary bear market. We're not going into, we think, a global banking crisis market.

“Therefore equity markets around the world are probably in a double-bottoming process.

“So there are opportunities now for us to start adding into our funds for our clients.”

Chris co-manages pend.al/globalselect with Nudgem Richyal. The pair have been working together in global equities investing for more than 20 years.

Pend.al/globalselect is a global equities portfolio with a distinctive, yet proven approach. 

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An edited excerpt from this interview with Pendal’s head of government bond strategies Tim Hext:

I think the 50 percentage point rises are probably over for now [in Australia].

But you’ve got two lags going on.

Firstly, it takes several months for a rise to feed through to your mortgage. So given they only started in May, the full impact of rate rises won't be felt until the end of the year around Christmas.

The RBA will probably do two more 25s this year. They might put a third in up to 3.1%, but let's call it 3%.

I think then they'll sit back and see what impact it's had.

Secondly, on the goods inflation side there's a huge amount of evidence that we've seen the peak in the US. There's every chance we'll get some negative CPI US prints.

This doesn't mean inflation's over. It doesn't mean they're going to cut rates, but that certainly takes the pressure off for hiking rates.

* Tim Hext is head of government bond strategies in Pendal's Income and Fixed Interest team.

Find out more about Pendal’s fixed interest strategies at https://pend.al/fixedinterest.

Pendal is an independent, global asset manager. Find out more at www.pendalgroup.com.

See omnystudio.com/listener for privacy information.

China is one of the few countries lowering interest rates. Pendal’s head of income strategies AMY XIE PATRICK explains why — and what it means for investors

Excerpt:

"The first thing to remember about these China authorities is they are not independent monetary authorities as we know them in Australia and the US.

"The central bank in China has been lowering interest rates because the economy quite frankly is in a rut.

"Most major investment bank analysts expect growth in China will fall to levels not seen over the last decade.

"Quite frankly China will struggle to get above the 4% threshold for the next year or perhaps even more.

"So the reason why China central bank is easing when the rest of the world is tightening, is because its economic situation looks a lot more dire."

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Find out more about Pendal's fixed income strategies at pend.al/fixedinterest

Pendal is an independent, global asset manager. Find out more at pendalgroup.com

See omnystudio.com/listener for privacy information.