Colin Brinsden, AAP Economics Correspondent
(Australian Associated Press)
The Future Fund hasn’t been voted world’s best sovereign investor for nothing.
The fund poured just over a fifth of its $118.4 billion portfolio into cash last year as it took a cautious view of the global investment outlook, predicting greater volatility and lower prospective returns.
“We have taken risk out of the portfolio and we are relatively cautious at this point,” the fund’s managing director David Neal told a Senate estimates hearing in Canberra on Tuesday.
The fund, set up in 2006 to cover future unfunded liabilities of public service pensions, was recognised at the beginning of this year by the Central Banking journal as “sovereign investor of the year”.
Mr Neal’s comments came as world financial markets suffered a renewed bout of jitters – the hallmark of trading so far this year – or “carnage” as one analyst labelled it.
The Australian stock market tumbled nearly three per cent in late afternoon trading on Tuesday following a weak finish in the US on worries over the global outlook and even bigger losses in European shares on worries over the banking sector.
Signs of stability in Australian consumer confidence, after tumbling since the start of the year, could prove short-lived given the latest sell-off.
The ANZ-Roy Morgan weekly consumer confidence gauge edged 0.2 per cent higher, breaking the declining trend over the previous four weeks.
“As a small, open economy, Australia remains vulnerable to the fortunes of the global economy,” ANZ chief economist Warren Hogan said.
However, the domestic economy was not in bad shape which should play some part in supporting consumer confidence.
Treasurer Scott Morrison agreed, saying Australia is becoming a more diversified economy that is more jobs intensive.
“The volatility in financial markets sadly continues … but the Australian economy is successfully transitioning,” he told parliament.
Somewhat surprisingly, other figures showed business confidence held steady in January despite market turmoil.
However, the latest National Australian Bank monthly business survey showed conditions easing again in the first month of 2016.
NAB chief economist Alan Oster believes while there has yet to be a material negative impact on business from financial market volatility, the longer these uncertainties continue “the more the risk that they will flow through”.