Financial market wrap – what's next for 2019?
With 2018 now in the rearview mirror, it's time to look ahead at what 2019 looks like for global markets and your superannuation. Join Sunsuper's Dream Team, Anne Fuchs and Brian Parker as they discuss everything from the US-China trade war, Italy and the Eurozone, Brexit and, of course, financial events closer to home.
Voice-over: Welcome to the New School of Super, a fresh look at money matters, you Super, and the things that could affect your financial dream now and in future, with Sunsuper's chief economist, Brian Parker and head of advice and retirement, Anne Fuchs.
Anne Fuchs: Hello, and thanks for listening. Welcome to The New School of Super, Sunsuper's podcast series covering money markets, investments, Super, and most importantly, making sure you achieve your retirement dreams. With me is my good friend Brian Parker, he's back again, our Chief Economist. The man that knows everything about the world, the Australian economy, investment markets, how to build investment portfolios, and members' investment needs. My goodness you are clever Brian. Now-
Brian Parker: Oh, thanks so much.
Anne Fuchs: And for those who haven't heard one of our podcasts before, my name is Anne Fuchs and I head up Advice and Retirement here at Sunsuper. And the team and I are passionate about helping our members fulfil their retirement dreams. We come to work every day giving them high quality financial advice to meet that goal. So Brian, what are we talking about today?
Brian Parker: Well thanks Anne, it's great to be here with you again. But before we start, there's an important message.
Anne Fuchs: Yes of course. Of course.
Brian Parker: Yes, indeed. As always, before we start, I need to let you know that what we're going to be talking about today is general information only. Any advice doesn't take into account your particular circumstances, you should consider your circumstances and think about getting personal advice before acting on anything we talk about today. You can also get a copy of our product disclosure statement from our website or give us a call on 13 11 84.
Anne Fuchs: Brian, I always know why you're in the good books with our legal risk and compliance team, because you always do such a fabulous job.
Brian Parker: Absolutely. I just have a much quieter life if I do that.
Anne Fuchs: It's a good approach. So 2018, that was a big year. I don't know if I would describe it as a great year for financial markets.
Brian Parker: Well, it certainly wasn't a good ending to financial markets, share markets across the world really performed quite badly in the December quarter. We have seen a bit of a rebound so far in 2019, which is pleasing. But it's fair to say that financial conditions remain pretty volatile. It's still a very uncertain world at the moment.
Anne Fuchs: So 2018, if we break it down into two halves, what, the first half of 2018 was?
Brian Parker: The first half of 2018, there was plenty of stuff to worry about and there was certainly plenty of uncertainties but still share markets performed reasonably well, that you actually got very, very solid investment returns and markets seemed quite willing to sort of overlook some of these sort of emerging problems. But when the December-
Anne Fuchs: The second half.
Brian Parker: Quarter hit in particular, a whole bunch of things ... Here's a list we prepared earlier, worries about slower global growth, worries about the U.S. China trade war, worries about Brexit, and towards the end of the quarter, worries about another U.S. government shut down, because Congress and the White House couldn't agree on funding the operations with the U.S. government and build a wall at the same time. So, there was a whole list of things which finally sort of put a serious dent in the market's confidence.
Anne Fuchs: And do you think too, the second half of last year for banks was incredibly challenging as a consequence of the Royal Commission?
Brian Parker: Yeah, absolutely. That's certainly weighed on. If you look at the performance of bank shares in Australia, the whole Royal Commission environment weighed on them very heavily. It also led to a lot of people worrying about how banks would respond. Because one of the things that's really crucial for the longer term health of any economy is that if you're a credit worthy household or business, you need to be confident that you can actually go to your bank and find your bank ready and willing to lend you money on reasonable terms. And there was some doubt as to whether banks would actually respond to the sort of new regulatory environment or the pressures from the RC by sort of unilaterally if you like, tightening credit standards. And I think the jury's still out on that one.
Anne Fuchs: Because the small business complain that they can't get a loan regularly, and yeah, small business is the fuel of the Australian Economy.
Brian Parker: Yeah, very much so. In fact, if you look at some of the business surveys, there's an element of that but it's certainly not dire, I don't want to ring too many alarm bells here. But if you look at some of the more recent business surveys, when you ask businesses, "Are you finding it harder to get credit," there's been a reasonably significant increase in the percentage of businesses saying, "Yes, I am finding it harder to get credit." It's nowhere near GFC days, if you think about it. During the GFC the availability of credit really did seize up for a lot of businesses, not just here in Australia but around the world. But it's certainly something to watch pretty closely there.
Anne Fuchs: And banks just for our listeners, what do the banks represent in terms of the overall stock exchange here in Australia, the market that we have to invest in? Is that testing your knowledge there Brian? I heard a statistic-
Brian Parker: I'd say about it's about a third.
Anne Fuchs: I heard 25% but if you-
Brian Parker: Yeah, it's a very sizable chunk. If you think about it, our stock market is dominated really by a handful of big banks and a handful of big mining companies. And it does mean that that's not exactly a wonderfully diversified portfolio, if you stick to just Australian shares. But yeah, banks are obviously really crucial to the underlying performance of our stock market.
Anne Fuchs: So, I guess which is why investing overseas in incredibly important to how we manage our members' money here at Sunsuper, and I guess a quick update for 2018 heading into 2019 there's the geopolitical risks that we've spoken bout in a previous podcast, haven't gone away. Trade wars, I'm not sure is North Korea and the U.S.A. are friends today, I don't know if you have an update on Kim Jong-un and Trump, Brian?
Brian Parker: Well, there clearly varying amount of love in that room I think is the best way to describe it. There's certainly a whole bunch of stuff to worry about. As we record this, we don't have any clarity as to what's going to happen to Brexit for example, we don't know whether any sort of reasonable Brexit deal is actually going to be done, and we don't know whether we're going to face yet another U.S. government shutdown, because if Trump can't get his wall, he may just take his bat and ball and go home again.
Anne Fuchs: Well he's threatening to do that.
Brian Parker: Absolutely. And so there's still a whole plethora of political issues that could weigh on markets. And again, one we haven't talked about for a little while is Italy, problems in the Euro zone in general and Italy in particular, could also come back to really unsettle the market. So there's a whole list of stuff to worry about but to be fair, when you're investing money, there is always stuff to worry about.
Anne Fuchs: So I'll ask you the pointed question, what's Italy's ‘problema', to use an Italian word?
Brian Parker: Oh, very nice. Yeah.
Anne Fuchs: Grazie tanto.
Brian Parker: I've got nothing.
Anne Fuchs: Yeah.
Brian Parker: So look in short, slow growth, very, very high levels of public debt, a very inefficient economy, and a bank system that is basically struggling under weight of quite large problem loans. So it's really not a terribly pretty picture.
Anne Fuchs: So if it's a hard Brexit and the United Kingdom are not able to import the high quality cheese, bread, and olive oil from the Italians, what impact does that have on the Italian economy and the Sunsuper member?
Brian Parker: Oh look, the impact of Brexit on Italy is relatively minor to be honest. Italy is sort of ...
Anne Fuchs: So our members shouldn't be worrying about this?
Brian Parker: The should be ... I'd put it this way, all of these issues one way or another will get resolved. And I think even they're a source of short term market volatility, it's important to remember that if you're investing money for your superannuation, especially if you're a relatively young member, every crisis, every bare market, every disaster you care to name comes to an end bar none, and life and the economy and business goes on.
And I often sort of say to members is that, there's always stuff out there to worry about but if you're thinking about, where are you going to generate good long term returns from? The reality is, despite all these risks that we've talked about, a whole range of businesses, all around Australia and all around the world are going to basically make a profit and pay dividends out of that profit.
And why are they going to do that? They're going to do that because every day we wake up needing to be fed, to be clothed, to be entertained, to be medicated when we're sick, to be travelled around, to be communicated with, to be banked, to be insured, and a whole bunch of companies all around the world will make a profit by meeting our needs. That hasn't changed regardless of what happens with Brexit, or what happens in North Korea, or what happens in Italy.
Anne Fuchs: However I will say that risk and your risk appetite as an investor is incredibly important, as to finish up this conversation, that in these challenging times, an investor who is considering retiring in a year or two's time, versus an investor who is 35, has much different considerations around where they're money's invested from an asset allocation perspective.
Brian Parker: Yes. Absolutely. And it's worth mentioning that if you happen to be a Sunsuper member in our default option, we kind of take care of that for you. So as you approach and then enter retirement, we are gradually, gradually reducing your exposure to share markets. So that we're trying to reduce the risk of share markets ruining your retirement, and I think it's important to remember that.
But you make a valid point that everyone is different. Everyone is at a different phase of life, everyone has a different appetite for risk, everyone has different financial needs and goals. And so really, while we think our default option suits a large number of members, and full disclosure, it certainly suits this particular member, i.e. me, but at the same time, the best investment portfolio is one that you've actually sat down, got some professional advice about and actually constructed yourself.
Yeah, so I think advice is absolutely crucial here to make sure that the investment portfolio you have suits you and suits your stage of life. And one last point, if you're trying to make up your mind about what kind of investor you are, I have this great rule of thumb called the sleep at night test. As a true measure of what kind of investor you are and how much risk you're willing to take, ask yourself this, "Am I losing more than five minutes of sleep at night because of something I'm doing with money?" If the answer's yes, it means you're taking too much risk and your body is telling you something, because sleeping at night can never be overrated.
Anne Fuchs: I couldn't agree more. So, I think that's a good plug for the importance of financial advice.
Brian Parker: Correct.
Anne Fuchs: Sunsuper members, you can access that by contacting us on 13 11 84 and for those listeners who need financial advice, find a good quality qualified financial advisor and seek out that professional financial advice, because it can make a huge difference. So Brian, I think we're done. They're shooing us off. How rude.
Brian Parker: I know, absolutely.
Anne Fuchs: Don't they want to hear us talk all day?
Brian Parker: You certainly do.
Anne Fuchs: Thank you very much for listening.
Brian Parker: Good on you. Thanks Anne.
Voice-over: This has been The New School of Super. For information and inspiration to help you plan your future, manage your super, and enjoy your retirement, visit sunsuper.com.au/thedreamproject. Or if you've got a superannuation or investment question you'd like Brian and Anne to discuss, then get in touch at newschoolofsuper.com for it to feature in one of our future New School of Super podcasts.
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