Living with Australia’s Cold War with China

Geopolitical tensions with China will be something that Australia has to learn to live with for the next 20 years, according to a panel.

Speaking at the CFA Societies Investment Conference, panellists were asked key themes and what they meant for Australian and global markets.

Referencing the tensions between Australia and China, Con Michalakis, chief investment officer at Statewide Super, said this had prevented the superannuation fund from making any direct investment to the country.

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Tensions had heightened recently after Australia agreed to acquire submarines from the United States and last year saw China impose tariffs on certain Australian exports such as barley and wine. Meanwhile, several Australian asset managers were exiting their exposure there over regulatory fears in technology, education and gaming.

“This isn’t going away. Unfortunately, this is something we will have to deal with for the next 10, 15, 20 years,” Michalakis said.

“We’re just going to have to live with the heightened geopolitical tensions, the way previous investors had lived through the Cold War.

“Does it deter us? I think ultimately you get lower multiples, will Xi [Jinping, President of the People’s Republic of China] end up like Putin and will China evolve into a Korea or Japan? I don’t know the answer to those but it does cap multiples if you think your stakeholder stake can be taken away at any time by law or changes in regulation.

“That does explain why we haven’t yet gone directly in China yet.”

Moving on, Heather Brilliant, Diamond Hill chief executive, said she was concerned about environmental, social and governance (ESG) investing becoming a ‘tickbox exercise’ for companies.

“The level of documentation required is much greater than anyone is actually doing and the vast majority of investment managers are not fulfilling the data expectations that have come to bear on us very quickly,” Brilliant said.

“What’s really important is we focus on what authentically creates change and the big risk is that we fall into the trap of ticking the box and not worrying whether we’re actually having a positive impact on climate or emissions. That’s a terrible outcome and something we really have to fight.”

Michalakis said: “What are we even ticking, how is it measured? There are so many questions when you start to look at how the data is being measured and what’s real.

“I find for my team, there are more questions than answers at the moment and we are going to get better but there is work to be done.”

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