Tariff Turmoil Cools
Regular readers of our market reports will be familiar with the extensive coverage we’ve given to the US administration’s tariff agenda.
To give readers an insight into our investment process, we provide a detailed review of our investment in Brambles, the world leader in pallet pooling networks.
Please click here to read our August 2025 markets report as a PDF.
Australian Economy
The Reserve Bank of Australia reduced the cash rate by 25 basis points to 3.60% in August. This time, the nine board members voted unanimously, in line with market expectations.
The central bank contentiously paused in July, awaiting clearer signals on labour market tightness and inflation. That partly arrived with the June quarter data, with underlying inflation staying within the 2-3% band for the second consecutive release.
Still, unemployment remains historically low at 4.2% meaning the RBA will continue to err on the side of caution regarding future cuts. The central
bank has now cut the interest rate every three months this year (February, May and now August).
Markets are currently pricing in one more rate this year, likely in November.
Equities
The S&P/ASX 200 rose 3.1% in August, breaking through the 9,000-point mark for the first time. August also coincided with the annual reporting season, when most ASX-listed companies release their full-year results.
This drove significant share price volatility, with companies missing expectations falling an average of 8.5% on the day, while those outperforming rose an average of 2.9%. After three consecutive years of negative earnings growth, the index is projected to deliver earnings growth of 6.1% in FY26 and 8.5% in FY27.
Globally, equity markets continued to climb. The MSCI World returned 2.0%, led by strong performances in Japan, Europe, and the US. Broad-based gains across regions were underpinned by reduced tariff uncertainties.
China gained after agreeing to extend country-specific tariffs with the US until November 10. India, however, faced new challenges, with the US imposing an additional 25% tariff, raising the total to 50%. The impact is expected to be limited, as US trade represents only 2% of India’s GDP.
Bonds
Individual fixed income markets delivered mixed returns in August, with regional economic data the primary price driver. Overall, the Bloomberg Global Aggregate bond index gained 1.5%.
U.S. Treasury yields retreated after a soft non-farm payrolls report indicated interest rates may need to be cut to support the economy. Japanese yields also fell, with inflation reaching 3.1%, which is well above the 2.0% target.
Elsewhere, UK bond yields strengthened as inflation remains stubbornly high, even as the Bank of England cuts rates. European yields rose as manufacturing data pointed to a continued recovery in manufacturing and other sectors.
In Australia, 10-year government bond yields edged up 2 basis points to 4.28%, reflecting a stronger-than-expected monthly inflation print. This continues the year-long pattern of yields fluctuating within a 4.10%–4.50% range.
Commodities
Commodity markets delivered mixed performance. Oil prices fell 8.8% after the International Energy Agency cut its 2025 demand forecast, while U.S. natural gas prices declined on the back of strong production and ample inventories.
In contrast, precious metals remained a bright spot. Gold ended the month up 3.9% at US$3,415, while silver climbed 7.1% to US$38.18.
Currencies
Following a strong July, the US dollar extended its decline against major currencies. Confidence in the greenback was weighed down by growing expectations of a September rate cut and concerns over the independence of U.S. institutions.
Meanwhile, the Euro, Japanese yen, and Chinese renminbi all strengthened as trade tensions eased.
In contrast, the Australian dollar weakened against its major counterparts, but gained ground against the USD to close at 0.652 cents.
Portfolio Spotlight: Brambles Limited (ASX: BXB)
Brambles has a storied history dating back to 1875, when Walter Bramble opened his first butcher shop in Newcastle. The business developed into an industrial conglomerate, buying and selling businesses, including its acquisition of Commonwealth Handling Equipment Pool (CHEP) which would become the cornerstone of its global operations.
The origins of CHEP date back to the Second World War, when the US military left behind millions of pallets and containers on the East Coast of Australia. The Federal Government took ownership of assets and later sold them to Brambles. Over the decades, CHEP slowly expanded to become the world’s largest pallet network with 360 million pallets across 60 countries.
What Makes Pallets Attractive
At first glance, wooden pallets may not seem like an appealing industry. They break easily, go missing, and are difficult to track.
But they are also vital to the flow of commerce, ensuring goods move reliably, safely, and efficiently. Once manufactured, pallets can be leased and reused for years, a dynamic reflected in Brambles’ return on invested capital exceeding 22%.
Those returns of course, attract competition, but subscale competitors struggle to penetrate Bramble’s fortress-like market position. Competitor iGPS collapsed after failing to account for roughly 15% of its pallet inventory.
While smaller competitors do exist, they cannot match Brambles’ reliability or extensive network. That makes it easier for Brambles to attract high-quality customers, who look after the pallets and extend the useful life of the asset base.
Why We Became Interested in Brambles
Historically, Brambles has owned and operated several distinct businesses spanning transport, waste, and logistics. These divisions however obscured the financials and therefore made it difficult to ascertain the true value of CHEP.
Moreover, the company had poor cash flow conversion due to operational mishaps. Brambles wrote off US$200 million of missing pallets in 2002, and again impaired CHEP by US$248 million in 2017.
For these reasons, Brambles initially did not meet our quality criteria. While there was a good business in there, the profits rarely flowed through to shareholders. To become interested, we needed to see the cash flow improve.
The appointment of Graham Chipchase as CEO in 2017 marked a major turning point. He divested non-core operations and refocused the company on its core pallet pooling business. Chipchase also reduced pallet loss by pruning customers who failed to return pallets and investing in tracking technology.
The pandemic further reinforced Brambles’ market leadership. Supply chain disruption and surging lumber prices drove acute pallet shortages, forcing customers to stockpile and depend even more heavily on CHEP.
The company made significant investments in new pallets during this period, impacting short-term cash flow.
However, it is now reaping the benefits of that investment, as capital expenditures stabilise and cash flow strengthens.
FY25 Results
Brambles’ latest results reflect this stronger position. Free cash flow for FY25 improved 24.0% to US$1.09 billion. That enables the business to pay down debt, purchase back US$384 million of shares and fund US$531 million in dividends.
After the temporary demand spike during the pandemic and ongoing trade headwinds, global commerce has slowed. Despite subdued market volumes, revenue increased by 3%, with the company securing several key client wins over the course of the year.
Although volumes remain soft, management is guiding for 3–5% revenue growth in the coming year, alongside planned efficiency initiatives. Strong cash flow is expected to continue supporting share buybacks and dividend payments in the future.
Boring is Beautiful
Brambles may operate in a dull-sounding industry, but its network effects and mission-critical role in supply chains make it a resilient business. We aren’t the only ones to recognise Brambles' improving performance, with the share price doubling since the start of 2023.
As a result, the business was recently added to the S&P/ASX 20 index. We hope the spotlight helps our investors understand our investment process, which focuses on companies with growing earnings and cash flow, strong management, and robust market positions.
General Advice Disclaimer: The information and opinions within this document are of a general nature only and do not consider the particular needs or individual circumstances of investors. The Material does not constitute any investment recommendation or advice, nor does it constitute legal or taxation advice. Zuppe International Pty Ltd (ABN 12 628 405 952)
(The Licensee) does not give any warranty, whether express or implied, as to the accuracy, reliability or otherwise of the information and opinions contained herein and to the maximum extent permissible by law, accepts no liability in contract, tort (including negligence) or otherwise for any loss or damages suffered as a result of reliance on such information or opinions.
The Licensee does not endorse any third parties that may have provided information included in the Material. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. Therefore, any stated figures should not be relied upon. The investment return and principal value of an investment will fluctuate so that an investor’s investments, when redeemed, may be worth more or less than their original cost.
