Wealth fund booms despite trade tensions

FUTURE Fund chairman Peter Costello says the political relationship between Australia and China is “very strained”, making investment between the two nations much more difficult.

The former federal treasurer has also warned the local economy risks being harmed by a protracted trade war between the US and China. His comments came as the nation’s sovereign wealth fund unveiled a bumper 11.5 per cent return for the year to June as it reduced its cash holdings in favour of investments in emerging markets spanning Asia, Latin America and other locations.

The result easily passed the fund’s 5.6 per cent target, despite the rise in market volatility.

Mr Costello said the investment outlook remained challenged amid financial volatility sparked by the tit-for-tat trade war between the world’s two biggest economies.

“The US-China tariff issue has undoubtedly spooked financial markets,” he said.

He also warned that global investors were pricing in a resolution to the US-China trade tensions and suggested there could be more sell-offs if that did not eventuate. He said Australia’s strained political relationship with China was also hurting the economy.

“The Australia and China relationship is very strained at the moment by a number of issues,” he said.

“That has made investment between the two countries much more difficult and put a lot of obstacles in the way.

“That has already had its effect on Australia and what would be even worse is if all of this trade tension leads to a downturn in the Chinese economy.”

Mr Costello established the Future Fund in 2006 with a government contribution of $60.5 billion.

Returns for the year to June lifted the fund from $146 billion to $162.6bn, meaning it has now earned the government more than $100 billion since its inception.