Published: 28 Feb 2020
It’s true to say that investment markets react to world events. It’s truer still to say that people reacting to world events cause investment markets to react.
And so it is with the outbreak of the coronavirus (COVID-19).
What happened and why?
Overnight, sharemarkets globally fell heavily, largely driven by the fear that the coronavirus may reach pandemic levels. This fear has intensified as the spread of the virus has accelerated outside of China, namely South Korea and Italy.
Initially, Australian investors appeared to ignore the early threat of the virus – and the impact of bushfires and floods – with the ASX 200 returning almost 5% in January 2020 and reaching all-time record highs. But on 27 February 2020 the ASX 200 returned -5.1%, wiping out the January return and slipping into negative territory for 2020.
How does this situation affect my super?
While it’s too soon to confidently predict the full impact on both the Chinese and global economy, it’s reasonable to expect a decrease in growth for Q1/Q2 2020.
In the short term, the effect of the coronavirus on investment markets will mostly impact the tourism and education sectors, and to a lesser extent the mining sector. These are the areas in which the restrictions on movement and travel will have the greatest effect. They’re also the areas affected by the slowdown of production in China and the follow-on impacts on supply chains globally, given the significance of China within the global economy.
As with any long term investment, your super will be exposed to many market cycles. How market volatility affects your super largely depends on which investments or options you’re exposed to, and when you intend to access your super.
We experienced similar bouts of market volatility more recently in late 2018 and in early 2016, and markets recovered to deliver very strong returns. Even after the market volatility this month, Energy Super’s Growth option has returned 5.01% from 1 July 2019 to 26 February 2020. On a one-year basis to 31 January 2020, the Growth option has returned 14.98% net of fees and taxes. Check our latest investment performance on our website.
Energy Super watches investment markets closely and we expect the short-term volatility to continue. Beyond the coronavirus, other events likely to affect investment markets are the upcoming US Presidential elections and the finalisation of Brexit on 31 December 2020.
We remain focused on the long term and will continue to diversify Energy Super’s investment options to provide smoother returns for members. In particular, we’re trimming exposures to shares that have performed exceptionally well, and we’re looking to increase investments in property, infrastructure and private credit.
Read about how the coronavirus impacts investment markets.
I’m still worried about volatility, what should I do?
We understand that when share markets fall, it’s only natural to want to do something to protect your investment. But remember, even if you’re retired your super is still likely to be invested for at least another 15 to 20 years.
Ultimately, you need to be comfortable with your level of risk. If you’re in a diversified investment option (which invests in many different asset classes) like Balanced or MySuper, the effect will be lessened.
That’s why we have diversified options, so that poor performance in one asset class doesn’t affect your entire investment. Because while sharemarkets are experiencing some falls now, you still have your super in other assets that are performing well.
If you’re still working and don’t intend to access your super any time soon, there should be no need to react. Often, the fear of loss leads to members selling out of investment options with growth assets and moving to cash. This strategy can be costly as it locks in losses. Staying invested means you can reap the financial rewards of an improved market and the compounding of returns on your investment.
However, if you’re not comfortable with your level of risk or you’re close to retirement, it might be a good idea to speak with one of our financial advisers provided through ESI Financial Services*. They can speak to you about the appropriateness of your investment strategy and may help you feel more comfortable.
Depending on your needs, this may be at no cost to you. To arrange an appointment for a phone consultation, contact us.
*Energy Super has appointed ESI Financial Services Pty Ltd (ESIFS) (ABN 93 101 428 782) (AFSL 224952), a wholly owned entity of Energy Super, to provide financial advisory services to members.
For more information about the Coronavirus, including travel advice, visit the Smartraveller website.