Hedge Clippings | 21 November 2025

Reflecting on last week's edition of Hedge Clippings we're struck by the fact that we could simply reproduce the commentary of the chances of a rate cut both here and in the US, but with some small adjustments to the actual numbers.

In the case of the RBA's next meeting, due on the 8th and 9th of December, we'd suggest the decision to hold has pretty much been set in stone, with the only chance of a cut being next Wednesday's release of October CPI numbers. While the RBA's minutes of the November meeting showed the decision to hold was unanimous, there were plenty of variables and possibilities about how inflation and the labour market might influence monetary policy. Hedging of bets (appropriate, given the meeting was held on Cup Day) was covered by consideration of multiple factors, uncertainties, resulting in "on the one hand" and then in the next sentence (or paragraph) "on the other hand".

At least we know the Board explored all the options!

Meanwhile, over in the US, last week we noted that the market's near overwhelming certainty (97%) of a rate cut just a month ago, had dropped to 50/50 based on a FactSet poll of market economists. This has now slipped further to being an outside chance at 22%, in spite of Trump's rhetoric and abuse directed at Jerome Powell, and the pressure he's trying to put him under. From what we've observed, Powell, to use the phrase coined by Maggie Thatcher way back in 1980, "is not for turning." As it is, Powell's term ends next May, so he probably feels he has a point to make regarding his independence, and the likelihood of his appointment for another (third) term is zilch, at least while Donald is in the White House.

He might as well tough it out.

The US Fed's next FOMC meeting is also in the second week of December, so on current projections, there'll be plenty of discussion and opinion, but not much action.

Where there is action is in equity markets, with increasing calls from various well-known parties that the stretched valuations in the tech sector can't continue forever. Others of course maintain the usual mantra that "this boom is different" - and while it may be, the signs and psychology seem very similar.

The following chart, courtesy of Callum Thomas of The Weekly Chartstorm, paints an eerie picture:

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Unlocking Indonesia's growth potential: low leverage, rich in resources, and market inflection in 20

Pendal

November 2025

(5 min read)

This article was originally published by Pendal Group in November 2025, following a quarterly Australian inflation update and the Reserve Bank of Australia's November meeting. While some data points and forecasts reflect conditions at that time, the core insights remain relevant for investors and fund managers. In particular, the discussion highlights how inflation surprises can alter monetary-policy expectations, influence fixed-income valuations, and reshape portfolio positioning. Readers should consider the broader themes around inflation dynamics and policy response rather than the short-term market context.

Indonesia's President Prabowo Subianto has an ambitious target to reach 8% annualised GDP growth by 2029. This would represent a sharp acceleration from an annual growth rate of ~5% for most of the past decade.

Chart 1: Indonesia's annualised GDP growth

Source: Trading Economics.

Unlike other economies, however, Indonesia is one of the least leveraged countries in the world. With government debt-to-GDP below 40%, there is ample room to spend to lift economic growth.

Chart 2: 2024 government debt-to-GDP for selected countries

Source: Trading Economics.

Typical of years following the election of new Indonesian presidents, government spending and economic activity has been weak in 2025. This presents the potential for a rebound in 2026 as newly installed government ministers and SOE leadership teams begin to execute on key programs and strategies.

To support this growth agenda, a new growth-focused Minister of Finance, Purbaya Yudi Sadewa, took office in September 2025. We are beginning to see the initial impacts of his changes to monetary and fiscal policy, with money supply growth jumping from mid-single digits in August to nearly 20% YoY in September. This will likely help to kick-start the economy into next year.

Chart 3: BI adjusted M0 growth versus M2 versus loans growth (% YoY)

Source: BofA Global Research.

In addition to low leverage, Indonesia is rich in natural resources, notably critical minerals such as nickel. In an inflationary world, these resources represent assets to the Indonesian economy which can continue to fetch ever-higher prices, supporting a stronger current account.

Chart 4: Indonesia plays a significant role in the global supply of some mineral and agricultural goods

Source: International Trade Center, Ministry of Energy and Mineral Resources, USGS, CEIC, Goldman Sachs Global Investment Research.

Indonesia's downstream verticalisation strategy to add value to its "rocks in the ground" has dramatically increased the export value of nickel-based products. As it moves up the value chain in different commodities, this can add material upside to the GDP growth outlook.

Chart 5: Nickel-related products export value increased ~8-fold since 2013 (left); Indonesia is a major producer of nickel, whose derivatives have high export value multiplier (right)

Source: International Trade Center, Haver Analytics, Goldman Sachs Global Investment Research (left); International Trade Center, Ministry of Energy and Mineral Resources, USGS, CEIC, Goldman Sachs Global Investment Research (right).

In light of temporary sluggishness in the domestic economy in 2025, we are finding highly attractive opportunities to own leading quality franchises in Indonesia. Some of these companies are generating dividend yields above 10% and delivering ROE approaching 20%, all while trading at discounted valuations.

Chart 6: Top yielding large cap APAC banks - FY25E yield (%)

Source: BofA Global Research.

Indonesia represents an exciting emerging economy, with a huge population of more than 285 million, rich in sought-after resources. This can support strong economic activity and business earnings into the future, particularly in an inflationary world. Trading at depressed levels of <12x forward P/E, nearly 2 standard deviations below the 15-year mean, and with strong dividend yields in leading larger corporates, now is the time for investors to reconsider Indonesia. These kinds of valuations do not come around often!

Chart 7: Indonesia MSCI Index forward P/E

Source: Citi Research, Bloomberg.

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Pendal MicroCap Opportunities Fund , Pendal Global Select Fund - Class R , Pendal Sustainable Australian Fixed Interest Fund - Class R , Pendal Focus Australian Share Fund , Pendal Horizon Sustainable Australian Share Fund , Regnan Credit Impact Trust Fund , Pendal Sustainable Australian Share Fund , Pendal Sustainable Balanced Fund - Class R , Pendal Multi-Asset Target Return Fund

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Beyond the Search box: what is the future of Search in the age of AI?

Magellan Asset Management

October 2025

(5 min read)

For two decades, the search box has been the undisputed gateway to the internet, a frictionless tool embedded in our daily lives. But this familiar landscape is undergoing a transformational change, driven by the rapid emergence of Generative AI (GenAI).

This evolution is forcing us to reconsider not just how we find information, but how the companies that provide it will create value in the coming years. The two leaders in consumer-facing GenAI¹ tools are OpenAI (via ChatGPT) and Alphabet (via Gemini).

The new landscape of search

When ChatGPT launched in 2022, it acquired 100 million users in just two months, a pace unmatched by any prior consumer technology. Its first-to-market user-friendly GenAI tool has catapulted ChatGPT to the most-used app in the world, but still behind Google.com as the most frequented website. Current usage statistics include:

Currently, however, traditional search and GenAI serve distinct purposes. Google Search has long been the master of specific intent. Its usage is dominated by informational queries (e.g., "what is the weather in Brisbane?") at ~55%, navigational queries (e.g., "Australian Museum website") at ~30%, and commercial queries (e.g., "buy flights to Melbourne") at ~15%. GenAI, on the other hand, excels at complexity. Around 70% of its use is for deep research and assistance, such as summarising reports or helping with homework. The remaining 30% comprises more search-like queries.

The who of the future of Search

These two worlds of Search and GenAI, in our view, are rapidly converging. The future of Search isn't a battle of one versus the other, but a synthesis of both. Magellan expect features and use cases to emerge that improve the experience for informational, navigational, commercial and deep research needs, as well as the emergence of agentic AI² use cases.

At present, ChatGPT has the GenAI mindshare of the consumer given its first-mover advantage. Google has Search mindshare - and isn't standing still on GenAI. Google, the pioneer of AI, is now integrating AI Overview into its core Search product, already reaching over 1.5 billion users of the tool, and over 450 million monthly 2 Agentic AI is an AI system that can autonomously and proactively act to achieve goals. Agentic AI can independently plan or make decisions to complete tasks.active users (MAU) of the Gemini app. In addition, Alphabet's scale and interconnected ecosystem are strategic advantages in driving future growth. Alphabet's assets include YouTube (>2.7 billion MAU), Android (>3.5 billion users), Chrome (>3.5 billion users), Gmail (>1.8 billion MAU), Google Cloud, and Waymo. This powerful consumer base and diversified platform, combined with Alphabet's GenAI capabilities, is a powerful platform to drive the adoption of GenAI and Agentic AI use cases. The breadth and depth of these services should enable Google to customise the AI experience for its users, which is hard to replicate.

Monetisation in the GenAI search era

The most critical question for investors is how this new technology will be monetised. Alphabet's current model is a digital advertising fortress, with Search ad revenue representing a ~$200 billion annual revenue stream, and an estimated 90% market share in search. Impressively, this revenue is generated from ads being shown on only about 20% of searches. The future, however, points to a more diversified revenue stack, and more, albeit still concentrated, competition. For example, OpenAI currently generates US$12 billion in revenue and is aiming to grow 10x by 2029.

At Magellan, we see four key pillars emerging:

• Continued Google Search ad revenue: The foundational, highly profitable core business will remain, albeit it will likely be smaller over the medium to long term.
• GenAI subscription revenue: Premium tiers for advanced AI features are already being rolled out, creating a recurring revenue stream. 
• GenAI ad revenue:  As AI provides more comprehensive answers, new, native advertising formats will be integrated directly into the generated content. 
• Agent revenue: This is the most transformative opportunity: an AI 'agent' that moves beyond providing information to completing tangible tasks. For example, users could engage an agent for booking an entire holiday, scheduling appointments or ordering products. The agent will be able to guide the consumer through the entire process from planning to discovery and purchase and is likely to take a small commission for the service. This moves GenAI players from an information provider to a commerce enabler. 

In summary, the world of search is evolving, creating a powerful new monetisation model. Magellan view that Alphabet is far more than just a search engine; it's a diversified ecosystem supercharged by AI and primed to lead in the future of search. 

¹ Generative AI or GenAI is a class of AI algorithm that can create new content such as text, images, audio and code based on learnings from existing data.
GenAI responds to user prompts.
Image: istock

² Agentic AI is an AI system that can autonomously and proactively act to achieve goals. Agentic AI can independently plan or make decisions to complete tasks.

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Staying the course

Canopy Investors

October 2025

(5-min read)

Funds operated by this manager:

Canopy Global Small & Mid Cap Fund