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What’s caused this latest drop in the markets?

26 October 2018

I’m seeing lots of negative news headlines about financial markets. What’s it all about? 

There are two key factors that have caused the recent global market activity:

  1. Ongoing concerns about trade tensions between the US and (particularly) China.
  2. Concerns about rising US interest rates. The US Federal Reserve has continued to raise US official rates, and that has also put upward pressure on market interest rates (e.g. US Treasury bond yields.).

Higher US interest rates are a concern for US shares for two key reasons:

  • Higher rates eventually lead to slower economic growth and hence profit growth, and that impacts on share prices. US corporate profitability has been very strong, but there is considerable concern that it may deteriorate from here.
  • Higher rates means that safer investments such as bonds may become more attractive to investors than shares, prompting them to sell shares and buy bonds.

What is Sunsuper’s take on the market activity?

Sunsuper is globally diversified across and within asset classes. For example, only around 25% of our balanced option is invested in Australian shares. Whenever something bad happens in any individual country, or in an individual company, our exposure is always going to be limited.

Our alternative assets - unlisted property and infrastructure, private capital and hedge funds - help our relative performance when equity markets are falling. Our unlisted assets, by definition, don’t swing wildly in value, and our hedge funds have a low correlation with share markets.

What does this mean for my super? As a Sunsuper member, should I be worried?

Market corrections such as this are very common. We do not know (and no-one can ever really know) if these market declines are the beginning of something worse. It’s worth noting that market declines enable our active managers to acquire shares at more attractive prices.  We also know that every crisis, every recession, every market downturn – even major downturns such as the GFC – come to an end – bar none.

One of the best defences against uncertainty in financial markets is diversification, and many of Sunsuper’s investment options are diversified for this reason. Whilst many of our portfolios have exposure to shares, they also have substantial allocations to other investments including property, infrastructure and private capital investments which are not listed on share markets.

Our investment strategies are set with a medium-to-long term view, which means we take into account short-term movements in financial markets when building our portfolios. Our enduring advice is to maintain investment strategy unless the outlook for markets has substantially altered due to a meaningful economic or market event. At this stage we do not believe either to be the case.

Where can I get more information?

If you’re unsure and want to speak to someone about what this means for your Sunsuper portfolio, please contact us to talk to one of our experienced financial advisers who can provide you simple advice about your Sunsuper account at no additional cost.