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the new school of super podcast series

Episode 16

Your super post federal election

July 2019

Sunsuper Chief Economist Brian Parker is back on the mic with Anne Fuchs, Head of Advice and Retirement, breaking down the federal election outcome and what's affecting the global economy. It's must-listen material if you want to know how your super could be impacted as our country moves forward with a newly formed government, and political issues around the world impact global and local financial markets.

Intro: Welcome to the New School of Super. A fresh look at money matters, your super and the things that could affect your financial dreams 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 investment markets, money matters, your superannuation and most importantly, making sure you live your retirement dreams. Now again, Brian Parker, our Chief Economists extraordinare here at Sunsuper is sitting opposite me, and he's going to be talking all about investments today because we are living through extraordinary times, and that's incredibly important when it comes to your super. And for those of you who don't know me, my name is Anne Fuchs, I'm Head of Advice and Retirement here at Sunsuper. And the team and I work hard every day to make sure our members are living their best retirement.

Brian Parker: Thanks very much Anne, it is great to be here with you again. And as always, before we start, we need to let you all know that we're going to talk today; what we're going to talk about today is just general information only. Any advice does not take into account your personal situation. You should consider your circumstances and think about getting a personal advice before acting on anything we talk about. You can also get a copy of our product disclosure statement from our website or by calling us on 13 11 84.

Anne Fuchs: That was beautiful. I'm sure you'll get a gold star from the compliance team, Brian for that one. Well done.

Brian Parker: Thank you Anne.

Anne Fuchs: So two weeks? Oh no, it's probably much longer. Actually, I'm losing track of time. Weeks ago, weeks ago, there was an election where Sports Bet didn't do too well in terms of paying out as to what the result was going to be.

Brian Parker: Yeah, I think that was written off to the marketing budget I suspect.

Anne Fuchs: I Suspect so? So I mean, besides the fact that everyone was very surprised by it. What did the stock market do? Was the stock market surprise? Has it had an impact?

Brian Parker: Well, not a lasting one. I mean, what you did see on the day after the first trading day after the election? You did see bank share prices, for example, rise really, really sharply

Anne Fuchs: They were euphoric.

Brian Parker: Yes, absolutely euphoric. But really, that reaction settled down fairly quickly. The bottom line for us is that has the economic outlook materially changed post the election. And the answer really is no. Or at least it hasn't changed because of the election. The Australian economy still has fairly significant challenges. Those challenges were with us before polling day, and those challenges remain well and truly in place.

Anne Fuchs: Well, speaking of challenges we have had, the trade wars are heating up again, and I think Australia narrowly avoided a tariff against us. I think - was it steel or…

Brian Fuchs: Or aluminium?

Anne Fuchs: Aluminium it was. I sense that this problem isn't going to go away in terms of the U.S. and the and the pressure and the posturing between China and America and whether we're collateral damage as an economy, what are your thoughts on that?

Brian Parker: It's a really good question, and I think you're right. I don't see the U.S. - China trade tensions being resolved soon. I think this is going to be an ongoing source of uncertainty for financial markets and for the world economy, and you talk about Australia as being perhaps collateral damage. For Australia it's kind of complicated because even though we're not directly impacted, certainly anything that adversely affects world trade adversely effects a trading nation like Australia. Anything that adversely affect our major trading partners, most notably China, obviously, but also the rest of Asia, that also does have an impact on us. But a lot of what we export to China is perhaps not going to be as seriously affected as, say, what other countries in Asia export to China because what you tend to find is that, ah, lot of exports to China from places like Korea and Taiwan, for example, they tend to be things like components that go into China's key exports and say you know IT or electronics, for example, and so anything that targets those sort of exports from China also adversely affects people who supply components to China is that that makes sense, whereas we don't tend to supply that sort of stuff. The stuff that we supply to China tends to go into Chinese infrastructure, Chinese housing, it's raw materials of steel.

Anne Fuchs: Okay then my question to you then Brian, so the Reserve Bank of Australia cut rates a couple of weeks ago and there was a sense actually after the election - it's a bit schizophrenic, really - the markets go up and then actually the Reserve Bank of Australia cuts rates. That in itself is quite schizophrenic in terms of messages, and then the sentiment is Australia's in for a bit of a hard time and slower growth. How does that all, how do they all marry, marry up, that we don't wear the risk that U.S does; stock markets go up, but rates are going down?

Brian Parker: Yeah, I think it's really what you've really seen is that in the second half of last year, the Australian economy really did slow down to a crawl and most of the data, at least a good deal of the economic data we saw in the first few months of this year, were actually quite soft. So the Australian economy is not doing brilliantly, really. We are seeing a much softer period of growth than we've seen for some time. One piece of good news that people have hung their hats on is the fact that we've continued to generate jobs and that's terrific. However, what we're also starting to see in the data is signs that that job generation is about to slow down, and if that does slow down, it means that unemployment could start to rise. It also means that the modest pickup in wages that we've seen in the last twelve months could also start to stall. That's really been keeping the Reserve Bank awaken night. What the Reserve Bank needs to see is they need to see jobs growth continuing, they need to see unemployment and under underemployment also come down on the need to see wages keeping, continuing to accelerate. There is a risk that process stalls, and that risk is now significant enough to prompt the RBA to cut rates.

Anne Fuchs: So, Brian, I'm going a little bit off script here. But certainly if you look at the election and one of the reasons why the result was probably different to what everyone thought was because of employment and regional Queensland and a lot of our listeners would actually be in Queensland and particularly regional Queensland and, where youth unemployment, I think - is close to - is in the high twenties. So what's your take on, do you have any insights around, you talk about employment slowing overall, is that just a metropolitan sort of capital city phenomenon? Or do you see that as a more, a broader trend?

Brian Parker: Well, again, we tend to deal in the macro aggregate. So if I look at the aggregate data across the economy, that's, that's really the picture we are seeing. We're seeing the risk of an overall slowdown and jobs growth. But in certain key regions of Queensland, in certain key regions of WA, you've started seeing mining activity ramp up again. So we're getting really, really good prices for coal and iron ore at the moment. And we're seeing very good volume growth in a lot of our key mining exports. Mining is one actually source of strength of the moment. But the reality is, for the rest of the economy, things that perhaps not quite as rosy. Retail sales, for example, are really quite soft, so retailers are doing it tough at the moment. Especially smaller retails are doing it quite tough. The financial services industry, for example, in the wake of the Royal Commission, you saw quite a sharp slowdown in hiring in that industry, not surprisingly; and, so it's what mining is doing well and key regions that are benefiting from that mining activity. They're doing quite well. But the rest of the country, perhaps not so much.

Anne Fuchs: So what's the lesson to our listeners in terms of, you know, what I'm hearing is uncertain times, complicated times. If you were to make a prediction, would you be able to make a prediction? Or you probably wouldn't be sitting opposite me, would you?

Brian Parker: No, if I could tell you where markets are going to be in the next six to 12 months, I'm not sure I'd be here. I'd probably be at my farm house in Tuscany, drinking my own body weight in candy, which is a lot of candy.

Anne Fuchs: That would be a sight to behold, Brian.

Brian Parker: I think the keys messages that we would like to get across to listeners is firstly, look, the last decade really has been a very, very good period for investment returns. You've seen quite decent global growth, and you've seen a strong recovery and share markets from the depths of the GFC. So the view through the rear-view mirror actually looks really good. But frankly, when you're investing money, investing money is like driving a car in the rear-view mirror is useful, but the windscreen is far more important and the view through the windscreen is more challenging. We are in an uncertain world. We're in a volatile world. We are seeing a slowdown in global growth. And I think what we need to understand is that over the longer term from here, investment returns are likely to be lower than the kind of returns that were achieved in the last decade.

Anne Fuchs: And for our listeners, there are a number of, we've had a couple of other episodes where we've discussed unlisted assets and this asset class is incredibly important for those uncertain times in terms of smoothing out the ride for our members. And I would encourage you to go back, and we, where Brian and I have done a deep dive and had a bit of a chat in more detail around why this is incredibly important to protecting your retirement savings.

Brian Parker: Absolutely. What we tend to find is that during a major market downturn, having a substantial exposure to unlisted assets in your portfolio, it doesn't mean that you're immune from these market downturns. But it does help soften the blow somewhat.

Anne Fuchs: Well I think, I hope our listeners have enjoyed today. I certainly have. It's been an extraordinary year so far, again, I can't believe we're six months plus into it. And it will be interesting to see where we finish. I wish you had actually made a prediction, Brian, because I'd like to have held you to it. But you've weaselled out of that one.

Brian Parker: I know it was a gift what can I say.

Anne Fuchs: well to our listeners thanks again. Thanks for listening to the New School of Super, and Brian, it's been fun, as always.

Brian Parker: Thanks, Anne. Talk to you again soon.

Outro: This has been the New School of Super. For information and inspiration to help you plan your future, manager 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 feature in one of our future New School of Super podcasts.

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