Planning for the year ahead: my top takeaways for 2022

I always value this time as an opportunity to reflect on lessons learned over the previous year, spend time with loved ones, and also plan for a big year ahead.

As CEO of HESTA, my thoughts have very much focused on our members. They are the ones holding up our vital health and community services, and have been under immense strain due to the surge in COVID-19 cases. I must acknowledge the significant sacrifices our members make each and every day to keep us healthy and safe.

At times like these I’m conscious of the important role HESTA occupies as a responsible steward of our members’ hard-earned retirement savings. This requires us to keep focused on that long-term investment horizon. And to consider carefully how current economic challenges and opportunities, and longer-term global trends, could impact our members’ financial future.

With this in mind, I thought it would be valuable to share my top four takeaways (I would never say predictions!) for 2022:

Takeaway #1: Opening borders to address key labour shortages

Governments around the world have supported economies and businesses to various extents with historic levels of fiscal and monetary stimulus. In Australia, this stimulus has combined with closed borders and the spread of Omicron, contributing to significant labour shortages and rising prices.

The impacts are being felt right across the economy. Businesses big and small are struggling to keep their doors open. And it’s hitting all sectors hard, from agriculture and logistics though to hospitality and the health and community services sector where many of our members work.

Our members, particularly across the healthcare, early childhood education and care, disability and aged care sectors, are telling us of the extremely challenging circumstances in which they’re working.

I think 2022 is the year we welcome back workers into Australia to help support so many of our important industries. As a migrant to Australia myself, I know the amazing energy and passion those starting a new life in this country can bring to our community and workplaces.

Takeaway #2: It’s still a ‘wait and see’ on whether higher inflation = higher wages

One area I’ve been asked a lot about is the prevalence of inflation and its effect on wages.

We don’t have to look far to see inflation rates were at 3.8% in June last year, the highest since September 2008. This is stretching family budgets with the impacts felt at the supermarket and at the petrol pump, where prices have seen their highest annual rise since 1990.[1] Construction costs are also at near-term highs - new dwelling purchase prices increased annually by 7.5% in the December 2021 quarter, the highest in 20 years.[2]

The big question for Australian households is whether this broader inflation will flow through to wage increases. While wages have gone up in some sectors, it’s still not clear if working Australians more broadly will get a long overdue pay rise.

I’m certainly interested to see how this will play out in 2022, especially given the Reserve Bank of Australia’s decision yesterday to keep interest rates on hold despite rising inflation.

I’m a strong proponent of increased wages in health and community services, where wages in this sector are the third lowest in Australia. Our economic recovery must prioritise putting our health and community sector on a more sustainable footing. This must include a workforce that’s appropriately paid for the vital work they do.

Takeaway #3: Our investment in high-quality infrastructure assets remains critical for resilient supply chains

Labour shortages are also exacerbating existing bottlenecks in the global supply chains. You don’t have to look far to see the impact of supply chain constraints across Australia and the world. Photos of empty supermarket shelves and messages of delivery delays dominate my LinkedIn feed, and the mainstream and financial press alike.

This is an area of both challenge and opportunity for long-term investors like HESTA. The benefit of our approach to patient capital deployment is that we invest in high-quality assets around the world. With around 90% of all internationally traded goods moving through seaports and the rest across air and land, our portfolio is well shaped to support key infrastructure assets.

At HESTA, we’ve been a large institutional investor in crucial infrastructure assets that are pivotal to our supply chain. For example, we invest in major airports, seaports and rail connections across Australia, that contribute approximately $40bn to GDP and more than 350,000 jobs nationwide.

These assets continue to be a key part of the HESTA portfolio in 2022 and beyond and typically provide streams of steady, long-term inflation-linked income.

Takeaway #4: Volatility is both a risk and opportunity

Finally, I write this on a week in which global markets have experienced volatility that we haven’t seen since the start of this pandemic.

It’s a good reminder these market ups and downs represent both a risk to be managed and an opportunity for patient investors with a long time horizon.

Our experienced investment team is skilled at managing volatility and it’s something we’re expecting more of in 2022.

Despite all the uncertainty, what hasn’t changed is that investing in quality assets and maintaining a long-term investment focus is as important today as it ever was.

[1] The national quarterly average price for unleaded petrol increased to $1.64 per litre in the December 2021 quarter, ABS (January 2022).

[2] New dwelling purchase by owner occupied, Australia, quarterly and annual movement (%), ABS (January 2022).