Posted on 28/02/2020
By Con Michalakis, Chief Investment Officer
As you would have seen, the markets are reacting to the increasing threat of the Coronavirus. Over the past week, share prices around the world are down over 10 per cent and are officially in correction mode – which can be healthy, adjusting overvalued assets and providing buying opportunities. As a result of these movements, superannuation balances have been impacted and I know some members might be concerned at the speed that the market is changing.
For some time I have been commenting that markets have been priced to perfection and were due to have a fall given the stellar run we have had. In fact since the global financial crisis, superannuation balances have more than doubled in default options on the back of rising markets and falling interest rates. Despite the “black swan” effect of the Coronavirus the current fall is somewhat expected given the recent strong returns. It’s important to be aware markets actually do this more than we realise. This opinion is shared by my peers throughout the industry both nationally and globally.
Over my career, I’ve seen the early 90’s recession, the Asian crisis of the late 90’s, the correction from the dot com era are in 2000, the Global Financial Crisis and in 2012, the European crisis. The most important thing is don’t over react. Most funds are well diversified and that diversification cushions up to half of the equity falls. Which means the impact should be lessened.
Secondly, we encourage members to stick to their long term investment goals and avoid the inevitable “noise” in the markets. As Warren Buffet, one of the great investors says “be fearful when others are greedy and greedy when others are fearful”. Our focus at Statewide Super is to rebalance back into shares should markets continue to fall.
Thirdly, I believe the Australian and global economy will suffer as overall commerce stops due to fears of the virus spreading but remember this too shall pass. I expect a global policy response of lower interest rates and targeted fiscal stimulus will help to alleviate lower growth.
Finally, any concerns are best served by seeking financial advice. In times like this, getting help and advice is the best away to navigate falls and difficult short term returns.