Investment update – Coronavirus and super

Investments

5 March 2020

As the Coronavirus (COVID-19) continues to affect financial markets, we acknowledge that as a CareSuper member, you may be concerned about your investments.

The impact on investment markets

Global share markets declined during February 2020 in response to the expected impact of coronavirus on global economies, company profitability and related shifts in investor sentiment. By the end of February 2020 global share markets had fallen over 10% in response to the coronavirus outbreak.

The main reason for these declines was economic activity around the world slowing as a result of the spread of the disease and restrictions being placed on movement and travel. In the short term, the effect of the COVID-19 on investment markets has been concentrated in sectors such as tourism, leisure and education.

Supply chains are also being significantly disrupted as production facilities in parts of China have closed. Significantly, business activity has largely ceased in some locations due to containment efforts (such as in Hubei province in China and northern Italy).

This means that revenues and profits of companies in these industries around the world, will be lower than expected in the near term. Uncertainty surrounding the course of the outbreak and therefore, the impact on shares, is making investors nervous.

The future outlook

While it’s too soon to confidently predict the full impact on both the Australian and global economy, it’s reasonable to expect a decrease in global growth over coming months.

It’s possible markets could fall further in the short-term, as the risk around continued spread of COVID-19 rises and investors become increasingly concerned about company profits. Uncertainty is high as it’s not yet clear how long it will take for normal business to resume in the most affected regions.

While short term impact is uncertain, governments have already started to introduce stimulus measures to help support recovery in financial markets. For example, the Reserve Bank of Australia cut interest rates from 0.75% to 0.5% on 3 March 2020 and the US Federal Reserve followed by cutting rates by 0.5%, setting US interest rates to 1% - 1.25%. It’s expected that other central banks that are able, will also follow suit and reduce rates.

Putting it all in context

The share market falls in February 2020 were quite rapid as investors were concerned that the short-term impact on businesses could be significant. Historic experience with events of this nature guides us to expect that at some point business activity will be able to normalise and economic recovery will follow. We’ll continue to monitor the markets and identify risks and opportunities as they emerge.

Keep in mind these recent share market declines have occurred following what has been around 10 years of strong financial market performance. For example, Australian share markets rose by 24% over 2019 and global share markets were up almost 28%. In our own investment options, the best performers for that year were those options with higher allocations to growth assets such as shares, with our Balanced option delivering its tenth consecutive year of positive returns.*

The impact on your super

In times of volatility it’s important to remember that super is a long-term investment and market ups and downs are normal. It’s not unusual to see market cycles including periods of strong returns followed by periods of more moderate, and sometimes even negative returns. This is because markets are continually changing. Events affecting markets may not continue, cycles change, and investor sentiment can move from negative to positive (and vice versa) quite quickly. So it’s important to put the recent market movements in the context of your long-term investment objectives.

As with any long-term investment, how market volatility affects your super largely depends on which investment options you’re invested in and when you intend to access your super.

Most investment options are likely to be affected in the short-term in some way. Generally, those options with a higher allocation to shares will be more adversely affected than those with lower allocations, just as these options benefited from continuously rising share markets over the last 10 years.

Keep in mind our Managed options – including the Balanced (MySuper) option (which the majority of our members are invested in), are well-diversified across different asset classes. Diversification means there are a number of sources of return – not just shares.

What we’re doing

We continue to monitor our portfolio and markets closely, assessing the outlook and managing investment strategy, which may include taking advantage of opportunities across the various asset classes that may become available.
But more importantly, our investment philosophy that guides the way we invest your money, prepares us for scenarios like this. We are well placed to navigate the current market volatility. Our investment strategy is designed to:

Focus on the long term
Actively invest for growth but also protect against downside risk
Diversify our investments to manage risks.

Read more about our investment philosophy.