TIM HEXT: Mixed signals will remain into Christmas | Pendal Group
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TIM HEXT: Mixed signals will remain into Christmas

Next year is when rate hikes fully kick in and the resilience of the real economy will be tested, writes Pendal’s head of government bonds TIM HEXT

IT’S been an extraordinary year. It’s tiring to think it still has more than two months to go.

The fiscal and monetary policy induced wild asset price party of 2021 has become the mighty hangover of 2022. 

Industry super fund advertisements are now boasting about their 10-year returns, not three-year returns.

Clear air is needed in 2023, but will it arrive?

Policy makers have gone from patience in 2021 to playing catch-up in 2022. For now they’re on message that they are happy for the pain to continue until actual – not anticipated – inflation turns.

Of course the problem is that inflation is a lagging indicator – often by six to 12 months.

However, central banks view an inflation policy mistake as worse than a recession.

Demand destruction is required, even though it means people losing jobs and in some cases forced out of homes.

Waiting for supply to solve the problem is proving too much.

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Pendal’s Income and Fixed Interest funds

The NZ CPI this week again highlighted the stubbornness of high inflation, stuck above 7%.  

The main driver this time was transport, with airfares up 25%. Not surprisingly after lockdowns everyone is trying to visit family not seen for years.

Out of interest I looked at trans-Tasman airfares. Wow! The Kiwi diaspora in Australia (and indeed the world) is huge, with a quarter of Kiwis living overseas at any one time.

They all seem to want to visit home at once. But it’s almost cheaper flying to Europe now.

Fixing will take time

These pockets show supply/demand dynamics in many industries will take time to fix.

Australia is less exposed given our larger size. But the themes are similar.

Clear air is unlikely until 2024 when a “normal” economy returns.  

By then permanent and student migration numbers should be near 2019 levels, providing relief in the important area of employment and wages.

For now markets are in a holding pattern.

Next year is when rate hikes will fully start to kick in and the resilience of the real economy will be tested.

Maybe finally we can buy bonds as a defensive asset class again. We remain vigilant.


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 Group

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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