Macquarie CEO Shemara Wikramanayake bullish on GDP, M&A, renewables

The explosion in inflation and consequent response of central banks does not faze Wikramanayake.

“Inflation has been slower to take off here in Australia than in some regions,” she said.

“It’s become more broad-based and more deep-seated in the recent period, which is leading to a likely shift as we all know here in monetary policy in the weeks ahead.

“We have the RBA’s next update due much later today, which we’re waiting on with interest.

Ukraine war driving fossil fuel demand

“Also this week, we’re going to have the Federal Reserve, and we’re going to have the Bank of England, so we will get a lot more insight into how the response from central banks is playing out to the inflation environment.

“Nonetheless, despite an expectation of rising rates globally, we expect growth to remain solid over the course of 2022 driven in part by the sharpening focus on the themes which I mentioned earlier, particularly as I said, decarbonisation and digitization and the availability still plentiful amounts of capital in the world.”

Another apparent contradiction highlighted by Wikramanayake was the sharp rise in the profits earned from fossil fuels – Brent crude oil has doubled in a year, coal spot prices are up 2.5 times since January and LNG spot prices have doubled since January – and the continued momentum for investing in renewables.

“(Since) 2021 the economic recovery and intensive demand for services and the disrupted supply chains have driven unprecedented demand for fossil fuels, especially in the emerging markets to support their growth,” she said.

“This trend, of course, has been now exacerbated by the war in Ukraine with energy supply concerns, leading many large countries to increase fossil fuel production.

“Now, we don’t see this as a binary choice between backtracking or doubling down on transition as some commentators have been suggesting because we think at times of energy scarcity and disrupted markets, it’s inevitable that countries are going to seek to consolidate whatever sources of energy are available to them at the moment.

“But this has not been at the expense of investment in green investment and green energy, both in terms of building greater scale in established technologies, and also investing in the high potential areas that need further work to reach broad deployment.

“So these high-energy prices have also given a higher price point to push business and consumers to bring forward investments in energy recently, including things like electrification, and to draw more capital into the earlier stage, higher risk investments of the type we’ ve been doing for many years, which again has potential to deliver sound financial returns, as well as great economic community outcomes.”

She said lower costs and targeted incentives are accelerating the uptake of renewable energy solutions such as offshore wind, solar and hydrogen.

‘Significant investment opportunities’

On mergers and acquisitions, Wikramanayake said rising interest rates and uncertainties caused by the Ukraine war would not dampen demand for takeovers.

“The Australian market last year, as we all know, saw a record level of M&A despite the limitations of a pandemic,” she said.

“And this year, it’s also begun strongly relative to what we’re seeing in global trends. Now, a portion of this activity has been driven by the huge pools of private capital, which had been prepared to offer a premium to public market prices, in part because they have different investment return thresholds compared to the listed market.”

Wikramanayake says, “the weight of available capital means there’s still scope for significant investment opportunities during this year despite this specter of rising interest rates that I talked about”.

Where are the women?

One area where the Macquarie Australia Conference is struggling to keep up with the times is the involvement of women on its panels discussing key business topics.

The conference has nine panels over three days and six of them have no women involved.

Topics where no women could be found to participate are: build to rent, carbon markets, automotive market, China relations, digital assets and private equity.

Some of these areas may well be male-dominated, but it does not look good, especially considered most industry superannuation funds now have a rule that representatives will not appear on panels that do not have gender diversity.

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