When markets are hit
by a curve

It’s during uncertain times like these that many are wondering what, if anything, they should do with their super. What happens to markets next will depend on a curve that market analysts don’t normally follow – the Coronavirus curve.

Share markets and economies run on expectations and emotions. We talk about bulls and bears but, put simply, during bull markets investors are confident about the future; bear markets are generally associated with pessimism or uncertainty. It reminds us that markets and economies are made up of people. And when people hurt, so do markets. But there is light at the end of the tunnel, it’s just that no one is sure how long the tunnel is.

Let’s take a closer look at what has happened in markets recently.

What's happened to markets?

Our Market overview will give you a detailed analysis of market movements in a number of investment areas but for now we’ll focus on the share market, specifically Australia’s but markets around the globe have followed a similar path.

The chart below shows that on 20 February the S&P/ASX200 hit a highpoint before falling 36.5% over the next month, hitting a low point on 23 March.

In the weeks following the chart shows that while volatility has continued, there have been signs of the market levelling out and even making up a little ground. At the close of markets on 30 April, the S&P/ASX200 was up 21.5% compared to the low point on 23 March and compared to the high point on 20 February it was down less than 23%.  

Source: Yahoo Finance, 30 April 2020

One of the key reasons share markets have been so volatile is the significant uncertainty over both the severity and duration of the spread of Covid-19 and the economic slowdown that has occurred around the globe due to many countries going into lockdown.

Over the past couple of months, the number of people being stood down or losing their jobs continued to increase in Australia and around the world. This in turn caused investors to worry about the impact to business profits and led to the volatility we’ve seen in share markets.

Government stimulus packages such as the $130 billion job keeper support package provided support to markets. However, unemployment in Australia is still expected to increase over the coming months, which will be a drag on the domestic economy.

It is almost certain that most developed countries around the globe will fall into recession over the next six months. The good news is that share markets have already taken this into consideration in their current pricing.

It is fair to say the fundamentals of the Australian economy were quite strong before the virus reached our shores and restrictions were imposed. The shock has been an external medical issue and not based on bad economic decisions or overvalued markets. How quickly our economy rebounds will depend on how flat the Coronavirus case curve goes, and how quickly it declines.

What history has taught us

While this situation is unprecedented, markets have been volatile before, and they will be again. If there is one lesson history has taught us, it’s that markets bounce back. Only the length of time differs.

One popular comparison is the Global Financial Crisis (GFC) in 2008 but there have been many other events that have had a significant impact on share markets. The table below shows the US share market’s 10 worst days and their rebounds over one and five years.

Source: Schroders Refinity data correct as at 3 March 2020. Data shown for S&P 500 Total Return Index which includes price increases and dividends.

Staying steady

During the GFC we saw many members change their investment strategy. Unfortunately, this was generally done at or towards the bottom of the market. The graph below shows us what would have happened if a member with an account balance of $100,000 switched from their EISS Super Balanced option into our Cash option when markets hit the bottom in February 2009 during the GFC. As you can see, both investments continued to grow, but the one that was switched to cash missed out on the recovery and higher returns.

This highlights the benefits of staying the course following a market decline. By 1 October 2017 the difference is $57,185 (65%) between the two investments.

Should I make changes to how my super is invested?

When considering current and future market volatility, it’s important to remember your super should be part of a long-term strategy. For those who are concerned, here are some general tips.

  1. Continue to monitor your super – remember share markets will take time to correct.
  2. If you are contributing to your super (or your employer is contributing on your behalf) it’s likely that every dollar you put in is currently buying you more investment units than it did a month ago. And if you're already retired, consider drawing on funds invested in our Cash option instead of money invested in investment options with a greater weighting towards share markets.
  3. Check how your super is invested. EISS Super’s investment options are diversified and none invest 100% of your money in shares, so when you hear the share market is down by a certain percentage it doesn’t mean your super is down by that percentage.
  4. Think about the level of risk you’re comfortable with.
  5. If you have a Financial Planner, continue to work with them. And if you don’t and you want personal advice about how to invest your super, please call us to make an appointment.

We're here to help.

During challenging times, when market volatility is high we understand you may be concerned about your super. If you have any questions or for more information, please call us on 1300 369 901, Monday to Friday from 8am to 8pm (AEST).