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Market declines and what it means for you

August 2019

What’s happened:

Not for the first time, US-China trade tensions have unsettled financial markets.
The latest iteration of this has been the decision to impose tariffs on all remaining tariff-free imports from China, and following that, the decision by the US Treasury to somewhat dubiously, label China a ‘currency manipulator.’

Why have share prices fallen?

Ultimately, trade wars are bad for the global economy and therefore bad for corporate profits and share prices. Until recently, there was a prevailing view in markets that common sense would eventually prevail, and that some kind of trade agreement would be put in place that would minimise the damage from this dispute. With the latest steps, there now seems little prospect of a near-term resolution to the trade war.

Things to bear in mind:

We have no way of knowing how this dispute will play out, and nor do we have any way of knowing with any certainty just how severe the impact will be on the world economy.

We do not construct portfolios on the basis of our own, nor anybody else’s short-term market and economic forecasts. Rather, we carefully construct portfolios with a view to meeting their medium- to long-term investment objectives.

Sunsuper’s diversified options are not immune to share market downturns. However, our substantial allocations to alternative assets, particularly our significant exposures to unlisted assests—infrastructure, private equity, and unlisted property—help provide our members with a “smoother ride” in difficult market environments, including the kind of environment we are experiencing right now.

Periods of market volatility are inevitable. Share markets are inherently volatile, but over the long-term investing in businesses listed on share markets tends to generate the kind of long-term returns that members need to build their retirement savings. One way of thinking about this is that short-term volatility is the price we pay for long-term returns; there is no such thing as a free lunch.
And for those members in the default option—the Lifecycle strategy— who are approaching retirement or in retirement, your investments are already less exposed to growth assets—including shares—than members invested in higher growth options such as the growth or balanced or shares options.

We encourage any of our members, especially if you’re approaching or in retirement, or if the volatility in world share markets causes you any ongoing concern, to speak to one of our financial advisers to find out if the Sunsuper investment option you have is the right one for you.

Every member is different. In particular, members will have different tolerances for risk and their need to take risk will vary, depending in large part on their stage of life. Someone who is approaching retirement may have a lower risk appetite than someone in their 30s who has ample time to recover from market downturns. And while younger members who are contributing to super are able to take advantage of share market declines to acquire assets at cheaper prices, benefitting from an eventual market recovery. Members in retirement generally do not have that luxury.

Moreover, younger members are likely to regularly be faced with similar episodes between now and when they retire. And every crisis, every market downturn, every recession comes to an end, bar none.