A $46 Billion Australia Pension Fund Braces for a ‘Messy’ 2022

(Bloomberg) -- Markets will see volatility ramp up next year as central banks intensify the fight against inflation, according to an Australian pension fund with A$65 billion ($46 billion) under management that’s still sticking with a wager on stocks.

The Construction & Building Unions Superannuation Fund is overweight in equities but cautious about sovereign bonds since yields will likely rise to reflect tightening monetary policy, Chief Investment Officer Kristian Fok said. The omicron virus variant is another potential source of market swings, according to Fok.

“A lot of the easy recovery has come through,” he said in an interview, adding the path ahead is “messy” but “we still feel there’s enough space in that noise for growth to continue for a period of time.”

The fund has cut back emerging-market equity exposure in favor of Australian shares, which have lagged global peers in the reopening from the pandemic and may get a tailwind from stronger commodity prices, Fok said.   

Investors are grappling with the implications of less generous monetary policy settings and still-uncertain economic threats from the omicron strain. Global stocks have slipped from record highs but remain up nearly 15% in 2021. 

Central banks aren’t likely to lift interest rates above pre-pandemic levels as the world is awash with debt, Fok said. So a negative real yield environment -- where interest rates are below the pace of inflation -- may persist.

That makes infrastructure assets, retail property and stocks “still not a bad position to be in,” even if they may look expensive, Fok said.

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