After a long period of continued growth and record highs, Australian and global share markets fell significantly over February and March in response to the expected impacts of the COVID-19 outbreak.
A big concern for investors was weak economic growth due to the limited movement of people and restrictions on the buying and selling of some goods and services.
While the market falls were large, governments around the world have passed unprecedented stimulus to support economies.
The US has announced stimulus measures equivalent to 13% of its GDP. Japan announced measures equivalent of over 20%.
These extraordinary measures, along with reduced interest rates and programs designed to support credit markets that underpin the economy, have helped markets start to recover.
While the US share market fell by 33.9% from the highs in February to the lows in March, it is now down only 12.4% from those highs. Domestically, the local market is down 23.1% (as of 22 May 2020) after falling 37% in March.
Over April and May, investment returns improved and market volatility significantly dropped.
Despite the improvement, the potential for further outbreaks of COVID-19 remains possible as global economies look to lift restrictions and move out of lock-down.
Many analysts continue to remain concerned that the measures taken to constrain the virus’s spread will impact economic growth for longer than current market expectations.
Overall, uncertainty remains elevated, and the path to normality is likely to be one lined with potholes.
How long will the volatility last?
How deep, long, or widespread the economic fallout of COVID-19 is hard to predict.
If containment measures and economic support are effective, any disruption to global economic growth could prove relatively short-lived.
However, the economic damage and the potential for new or secondary outbreaks (such as those in China and Singapore) makes the path back to normal economic life challenging.
We anticipate the overall effects of the outbreak to last months, perhaps longer, with market volatility likely to reappear periodically for the foreseeable future.
How does this affect my super?
All super funds invest in Australian and international share markets. The value of your super can change daily depending on how your super is invested.
When you join MTAA Super your super is automatically invested in the My AutoSuper (Balanced) investment option — unless you select another of our seven other investment options.
The My AutoSuper (Balanced) option seeks medium to high long-term returns through a balanced exposure to risk. It is a diversified option with investments in both growth assets, such as shares, and defensive assets, such as cash and fixed interest. Over 20 years, we expect 3-4 years of negative returns.
If you are invested in the My AutoSuper (Balanced) option or other options with growth assets, you may have noticed your super balance fell in February and March.
Since then, markets have started to recover, meaning your super balance may have started growing again.
While short-term losses can be concerning, and there is always the possibility of more volatility and losses in the future, it is important to remember that super is a long-term investment. Fluctuations in market performance are normal and expected.
We urge you to stay calm and not to panic. Our investment strategy is designed to let us overcome short term volatility to achieve solid long-term results.
What is MTAA Super's investment strategy?
Our investment goal is to deliver solid returns within an acceptable level of risk.
We aim to maximise returns during your working life and in retirement while protecting your accumulated retirement savings from large fluctuations.
To do this we invest in a diversified portfolio of assets that balances investment returns and risks. This includes investing in a combination of growth assets and defensive assets.
We also invest in several ‘alternative’ investments or asset classes such as private equity, alternatives credit, property, and infrastructure. These assets provide income streams that can buffer against the short-term fluctuations of share markets.
We are monitoring our portfolio and markets closely and will make changes to our investment strategy as required.
We are confident that our investment philosophy has us well placed to ride out the current market volatility.