Markets were right to see stimulus announcement as an inflection point + opportunity to venture back into oversold Chinese assets. But they misjudged underlying intent, which is to stabilise the economy rather than generate a major reacceleration.
Yup,,,,https://t.co/2gx4hS90Lb— Paul Triolo (@pstAsiatech) October 11, 2024
In an unprecedented move, a group of Australian superannuation funds has publicly urged Keir Starmer’s Labour government to implement reforms aimed at unblocking the UK’s sluggish pipeline of infrastructure deals. With Australia’s super funds increasingly looking offshore to invest their burgeoning $3.5 trillion in capital, they are emerging as significant players in the UK and other markets, potentially taking on a political profile to match their financial impact. As these super funds seek new opportunities beyond Australian borders, their involvement in the UK is seen as a strategic effort to leverage substantial financial resources in sectors such as infrastructure and energy.
"But there is no evidence of a shift from the key policies undergirding Xi’s long-term vision: central control of finance and capital allocation, a tight rein on the property market, and prioritisation of investment over consumption." @Gavekal https://t.co/suhJDedVUj
— Philipp Mattheis (@PhilippMattheis) October 11, 2024
With weeks to go until the Labour government announces its first budget, a coalition of Australian and UK investors, including Border to Coast, LGPS Central, and the North East Scotland Pension Fund, is lobbying the government to ease borrowing rules to bolster private investment. The pension fund-owned manager of IFM Investors initiated a blueprint document to attract more institutional capital. The initiative has received backing from some of the UK’s largest pension funds, including USS, Nest, Border to Coast, LGPS Central, and the North East Scotland Pension Fund.
It has also garnered support from Australian super funds such as Hesta, Aware Super, and CBUS.
As Arthur Kroeber explains, for #XiJinping, #China's "core task is not to maximise GDP growth but to create a self-sufficient, technologically powerful economy immune to efforts by the US to stunt its rise."https://t.co/35E0STKlVv
— Michael Kovrig (@MichaelKovrig) October 12, 2024
The new UK Government has made clean power by 2030 one of its defining priorities and aims to work with private sector investors to double onshore wind, triple solar power, and quadruple offshore wind over the next six years. However, the government is also facing key spending challenges.
UK Chancellor Rachel Reeves recently highlighted a £22 billion black hole in public finances.
"This programme is cogent as a national strategy, but unfriendly to financial investors. The emphasis on investment means that supply will always run ahead of demand, leading to deflationary pressure.."
China’s real intent behind its stimulus inflection https://t.co/qt9swD9Ex1
— Nicolas Goetzmann (@NicolasGoetzman) October 12, 2024
The blueprint presented today suggests reforming Public Sector Net Debt (PSND) by including the net worth of illiquid infrastructure investments for the first time. This proposal comes amid a growing debate about the role of the UK’s fiscal rules in supporting capital investment and the design of the new government finance institutions, Great British Energy (GBE) and the National Wealth Fund (NWF).
Pension funds advocate for fiscal easing
Gregg McClymont, executive director of IFM Investors, outlined the thinking behind the proposals: “Mobilising pension fund investment has the potential to create benefits for society, but quite rightly, pension funds have a fiduciary duty and must only invest in their members’ best interests. There are several steps to unlocking this investment, but a prerequisite is that the Government should account for infrastructure assets more like a long-term investor.”
Joe McDonnell, CIO of Border to Coast, commented on the initiative: “The transition to a net-zero economy will require wholesale changes to how the economy and society function and demand significant capital investment.
The collective scale offered by pooling enables the development of innovative solutions that expand Partner Fund access to investment opportunities in decarbonisation and provide the capital needed to fund the energy transition and support global net-zero goals.”
Mark Carney, the former Governor of the Bank of England, has stated that it makes “little sense” for fiscal rules to overlook the long-term benefits of public investment. He has called on the government to increase capital spending. Carney suggested that instead of the current regulations, the government should adopt a more comprehensive measure of the economy’s fiscal health to ensure that investment is not compromised.
“When money is being spent to build or buy an asset on behalf of the nation, it is only right that its value is captured in the definitions of national debt,” he penned in The Times. While several different fiscal rules are being considered, Carney emphasised that the crucial factor is whether the rules “allow long-term infrastructure investment to be appropriately recognised and rewarded”. He concluded by stating that it’s time to account for the resulting value in national assets alongside national liabilities and to clearly communicate these values to UK citizens and investors.
Chancellor Rachel Reeves had previously indicated that she would reform the fiscal rules to “take account of the benefits of investment, not just the costs”. She submitted the first draft of these new fiscal rules to the Office for Budget Responsibility (OBR) on Wednesday. A recent report by the Institute for Public Policy Research suggested that adopting public sector net worth (PSNW) in the fiscal rules could free up £57bn for the Chancellor.
PSNW encompasses physical assets like roads and hospitals, as well as the government’s financial assets. However, Institute for Fiscal Studies (IFS) economists cautioned that targeting PSNW is challenging due to the difficulties in valuing infrastructure.
April Isaacs is a news contributor for DevX.com She is long-term, self-proclaimed nerd. She loves all things tech and computers and still has her first Dreamcast system. It is lovingly named Joni, after Joni Mitchell.
