(L to R): James Syme, Paul Wimborne and Ada Chan

September and October are often monumental months in global markets and economics: for example the Asian economic crisis of late 1997 and the GFC in 2008.

This year’s start to Spring may not be quite as pivotal, but we’ve nevertheless seen unexpected and drastic changes in Brazil and China.

Brazil

Brazil’s composite Purchasing Managers Index — a measure of manufacturing industry health — was 56 in July and 52.9 in August.

A PMI above 50 indicates expansion, while below 50 indicates contraction.

Yearly retail sales were broadly up 7.2% in July.

We’ve also seen strong returns from Brazilian equities in local currency terms. The local Bovespa stock index hit a record high at the end of August.

This economic strength has not come with much inflationary pressure.

Inflation was 4.2% in the year to August (according to the local IPCA consumer price index). This
compared with 4.6% at the end of 2023 and 3.7% in the year to April 2024.

The Brazilian Central Bank (BCB), has responded by moving into a more hawkish monetary stance, lifting the benchmark interest rate by 25 basis points to 10.75% in September.

This move reflects waning confidence that inflation will decline to its 3% target.

Meanwhile, the US interest rate outlook has shifted in recent months, with a sharp decline in expected future interest rates and a 0.5% cut in the US policy interest rate in September.

This has eased pressure on emerging market economies and their currencies.

Together, these developments have further enhanced our enthusiasm for Brazilian equities.

Brazil is performing better than expected, but the weakness in the currency has offset this zeal for international investors.

We believe the central bank raising rates will not significantly worsen the outlook for local equities. Instead it should substantially improve the outlook for the currency (as does the US cutting interest rates).

We continue to believe Brazil equities can deliver strong USD returns.

But we now expect a larger share of that to come from the currency relative to the local equity market.

China

China’s Politburo convened in September outside its typical April-July-December timetable.

A resulting policy statement delivered a dramatic surprise for markets.

The Politburo underlined a critical shift in priorities, including “stopping the decline in housing” and “increasing lending to white-listed projects”.

There was also a Quantitative Easing-like target to “ensure necessary fiscal expenditures” through ultra-long special sovereign bonds and local government special bonds.

The People’s Bank of China had previously announced a number of monetary policies including cuts in official interest rate cuts, bank cash reserve requirements and the outstanding mortgage rate.

The bank also announced RMB 800 billion of support for the stock market.

Crucially, alongside these measures, the Politburo provided subtle updates to its monetary policy language, replacing the word “prudent” with “forceful”, indicating the direction of cuts in policy interest rates.

The market reaction was visceral.

Hong Kong-listed Chinese stocks rose 26% in six trading days on the Hang Seng China Enterprises Index. The Shanghai Composite Index rose 21.9% in the same period.

Consumer and property names (including the bulk of Chinese holdings in our portfolio) led the rise, including eight names that rose more than 40% between September 23 and October 2.

During a grinding slowdown in the Chinese economy since 2020, there have been previous policy-driven market spikes (including October 2022 and January 2024).

The magnitude of these recent occurrences aligns with previous episodes, but are moving at a faster clip.

What matters now is whether the new policies reverse current economic trends.

Our process involves paying close attention to emerging economic data, precisely because of turning points such as this.

Even amid these movements, we consider China’s low inflation, large trade and current account surpluses, earnings growth in parts of the equity market, and attractive equity valuations as reasons to maintain holdings in Chinese equities.

We have been overweight China since April 2024, have been rewarded for that stance in recent weeks, and continue to be on the look-out for opportunities in China.

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Richard Brandweiner

Pendal Group (Pendal) shines a light on financial advisers and the role they play in creating positive change in its latest brand campaign by ‘uberbrand’.

In this campaign, financial advisers meet disadvantaged community members benefiting from impact investing.

Financial advisers are increasingly driving the uptake of responsible investing in Australia through conversations they are having with their clients, with more than half of all advisers expected to offer responsible investing products this year, up from 41 per cent in 2021 according to Wealth Insights.

The future is worth investing in campaign features seven independent financial advisers around Australia, capturing stories about the role they play in responsible investing and the impact they have in the community.

Through a series of videos and stills shoots, the financial advisers share personal stories about responsible investing, and how they are helping their clients invest in making our world a cleaner, healthier, brighter, greener, safer, stronger, and fairer place.

This campaign showcases what responsible investment can do, taking advisers on a journey to meet recipients of affordable housing – funded by the social bonds they invest their clients’ money in  – from flood-affected people in northern NSW, to older women priced out of the private rental market.

Pendal Group CEO, Australia, Richard Brandweiner said, “We’ve long been inspired by the role financial advisers play in our community — not just building a strong financial future for clients, but by touching people’s lives in many different ways.”

“We may just have seen Australia’s first ESG election and it’s increasingly clear that we all have to play a role in shaping the planet’s future, as we go about shaping the future of our clients. This broader sense of purpose came to the fore this year when we asked advisers what made them proud.”

With this campaign, we hope to encourage more advisers to consider responsible investing options as part of their conversations with clients. We wanted to feature real advisers in our campaign. We uncovered deeply emotional stories and we’re proud to be able to highlight the amazing outcomes they helped create,” Mr Brandweiner said.

The campaign launched nationally in June and includes a series of print and digital ads, featuring in trade press, supported with a social media campaign.

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Justin Howell

Mainstream Group Holdings Limited (ASX: MAI) announces that Pendal Group (ASX: PDL) (“Pendal” or “Pendal Australia”) has entered into a five plus five year agreement with Mainstream Fund Services to provide outsourced registry services. The decision follows a competitive tender process, with the transition project commencing May 2020.

Under the arrangement, Mainstream will provide registry services for Pendal’s Australian funds with approximately $19 billion^[1] of assets under management.

The arrangement will provide Pendal with Mainstream’s existing operating model for other large fund managers, including deployment of automated workflow for email and paper transactions, online transacting, XPLAN reporting, Calastone, banking automation and the newly created Quoted funds functionality.

Pendal is an independent, global investment management business with $86 billion in assets under management^[1] and a focus on delivering superior investment returns for their clients through active management.

The annual contracted fees will be approximately 6% of Australian revenue and 3% of group revenue for Mainstream. The appointment signifies the third pillar in Mainstream’s key client strategy and means Mainstream now has long term contracts with three of Australia’s largest asset managers.

Mainstream Chief Executive Officer Martin Smith commented: “We are proud to support a client of the size and calibre of Pendal with our scale and experience in registry services. We have made significant investments in our registry services over the last 3 years and look forward to partnering with Pendal to drive automation and the investor experience.”

Justin Howell, COO at Pendal Australia, said “We were impressed with the robustness of Mainstream’s registry solution as well as the calibre of their clients. We are focused on minimising risk while improving our operational efficiency and enhancing our investor’s experience. We look forward to working with Mainstream to achieve this.”

The transition of Pendal’s register of unitholders from its existing service providers will require a very close working relationship between Mainstream and Pendal over the coming months. Completion is expected by March 2021.

This ASX Announcement has been authorised by the Board of Directors.

——–

¹ As at 31 March 2020.

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Itay Feldman has been recruited, initially on a one year basis, with a brief to integrate Machine Learning into the Bond, Income & Defensive Strategies investment process.   His role will be to utilise Machine Learning algorithms to provide a layer of filtering and analysis over the team’s current suite of quantitative models.

Mr Feldman joins Pendal from Advantage Data where he was a data scientist. He previously worked in New York City as an investment banker with MR Beal & Co and Ramirez & Co.

A former head of quantitative analysis and financial modelling for MR Beal, Mr Feldman specialised in building bond optimisation models, fixed income and swap pricing models.

He holds a Master of Information Technology (Data Science) from the University of New South Wales, an MBA from Rice University, a Bachelor of Arts in Economics and a Bachelor of Applied Science in Bioengineering from the University of Pennsylvania.

Mr Gor said “we believe that investment markets are entering a period of secular change and we are constantly looking at ways to improve and evolve our invest process to prepare for this change.  I believe that it is inevitable that machine learning will be embedded into investment decision making processes, the only questions are when to do it, and how.”

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Anthony Serhan

Pendal, the global investment manager formerly known as BT Investment Management, has announced the appointment of Mr Anthony Serhan as its Head of Distribution in Australia.

Mr Richard Brandweiner, CEO, Australia at Pendal, said, “I am delighted to announce the appointment of Anthony to this key role in the Australian business. I am confident he will provide the leadership required to help us execute on our sales strategy and contribute to the delivery of our overall business strategy.

“His extensive commercial and technical experience from both an institutional and retail perspective, coupled with a strong understanding of investment markets and products, made him the ideal choice for the role.”

Mr Serhan has more than 30 years of investment and financial services experience and is currently the Managing Director, Research Strategy Australasia for Morningstar, responsible for the development of research and commentary about investment themes and trends across the Asia-Pacific region.

Since joining Morningstar in 2003, he has held several roles, including: CEO Morningstar Australasia; Managing Director, Ibbotson Associates (now Morningstar Investment Management).  Prior to this he also worked for investment research firm ASSIRT, AMP Consulting and Mutual Benefit Consulting.

Mr Serhan is a CFA Charterholder, holds a Graduate Diploma in Applied Finance and Investment from the Securities Institute of Australia and a Bachelor of Business in Finance & Economics from the University of Technology, Sydney.  He is also a graduate member of the Australian Institute of Company Directors.

Reporting directly to Mr Brandweiner, Mr Serhan will be a member of Pendal’s Australian leadership team and be based in Sydney.

He will commence with Pendal Group in late 2018.

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James Evans and Emilio Gonzalez

Pendal Group Limited, formerly BT Investment Management, last Friday unveiled its new brand and was welcomed to the Australian Securities Exchange (ASX) with its updated ticker, PDL.  Pendal’s Chairman, James Evans, and Group CEO, Emilio Gonzalez, rang the bell to commence trading for the day.

Speaking at the celebratory event at the ASX, Mr Gonzalez said, “When BTIM floated on the ASX in 2007, it was a company with an impressive pedigree.  But, more importantly, it was a company with a vision for its future.  A vision which is being realised under its own identity.

“The execution of this vision has seen us develop from a domestically focused, equities-only fund manager, to a truly global asset manager.  We have built a reputation for ourselves; as an investment-led boutique fund manager, which attracts and retains the best talent and delivers outperformance for its clients.  It is a reputation which the Board, management, and shareholders agree now requires a brand name and identity that belongs to the business.”

The new name was approved at a General Meeting of shareholders last week with 99.6 per cent voting for the name change.

The name came from the reverse of Dal(gety) and Pen(sion) – to form Pendal being BT’s original nominee firm, which was established in 1971 to hold assets on behalf of its first potential client Dalgety.

Mr Gonzalez said, “It was important that the name capture two things; the firm’s pride in its history, as well as confidence in its future – and “Pendal” does just that.

Mr Gonzalez said that the company’s new logo sought to reflect another aspect of its business and what it does; finding the balance between risk and return.  The logo captures the true and tested philosophy of considering returns against risk.  It is in every investment we make or not make.  It is inherent in how we construct our portfolios and now forms part of our brand.

But he said, the rebranding process was about much more than designing a new logo.

“We saw it as an opportunity to distil and articulate our vision, our purpose and our company values.

“Trust is very topical at the moment; it is a reminder that it must be earned, and it must never be taken for granted, or exploited.  Relationships are central to everything we do; and our success is shared; with staff, with clients, and with shareholders.

“These values are our guiding stars.  They are integral to the vision we have for the future of our company, Pendal Group.”

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