Tim Hext: How the border re-opening will impact investors

Australia’s national border will finally re-open on February 21. TIM HEXT explains how the economy will respond

THIS week brought news of the re-opening of our borders on February 21 – to fully vaccinated visitors anyway.

Fingers crossed Covid does not bring new surprises.

It will take time for business-as-usual to resume. We will be watching numbers closely to see if it’s a trickle or flood — or more likely something in between.

The surge in inflation over the past year has been led more by supply side than demand side — so this should potentially bring some relief in labour markets over time.

Globally, goods supply bottle-necks should also ease, though not as quickly as some would hope.

So where does this leave inflation? Well, it’s complicated.

Goods markets inflation is likely already peaking about now. An increase in labour supply should reduce wage pressures over the medium term, but 2022 should still see a sellers (employee) market.

On the other side housing inflation (particularly rents) will likely pick up again with population growth.

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In most locations the flat-lining of the population has masked an under-supply of housing. This could again become an issue by 2023.

Inflation will ebb and flow in 2022 before settling down in the medium term not too far from the RBA target.

Longer term we stand by the view that inflation will be structurally around 1% higher this decade than last – nearer 2.5% than 1.5%.

Unfortunately market pricing is already there so the opportunity that markets gave us in 2021 is largely gone.

Our attention has now turned to the path of real yields as the big story in 2022.

(My colleague Amy Xie Patrick has just recorded a short podcast on this).

A combination of surging business investment, reduced monetary stimulus and sustainability initiatives should see real rates get back to zero over the year.  

This will put upward pressure on yields, though for now they have probably moved enough.

The RBA will take comfort from the border re-opening.

I suggest unions and employees in general take advantage of the current squeeze to lock in some decent wage hikes now, for the years ahead.  

About Tim Hext and Pendal’s Income & Fixed Interest boutique

Tim Hext is a Pendal portfolio manager and head of government bond strategies in our Income and Fixed Interest team.

Tim has extensive experience in banking, financial markets and funding including senior positions with NSW Treasury Corporation (TCorp), Westpac Treasury, Commonwealth Bank of Australia, Deutsche Bank, Bain & Co and Swiss Bank Corporation.

Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia.

The team won Lonsec’s Active Fixed Income Fund of the Year award in 2021 and Zenith’s Australian Fixed Interest award in 2020.

Find out more about Pendal’s fixed interest strategies here

About Pendal

Pendal is a global investment management business focused on delivering superior investment returns for our clients through active management.

In 2023, Pendal became part of Perpetual Limited (ASX:PPT), bringing together two of Australia’s most respected active asset management brands to create a global leader in multi-boutique asset management with autonomous, world-class investment capabilities and a growing leadership position in ESG.

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