Financial markets are starting to feel the pinch as they react to the outbreak of the coronavirus, and this could have huge implications for superannuation returns.
The outbreak of the coronavirus has led to a selloff in global share markets as investors switched focus to safe-haven assets.
Leading research house SuperRatings said that Asian equity markets have borne the brunt of the initial impact, but the effects are likely to be felt across global markets, noting that previous outbreaks over the last two decades have resulted in short-term equity market corrections within a range of 5–15 per cent.
SuperRatings executive director Kirby Rappell said that super funds had managed similar global crises well in the past and were well placed to manage the coronavirus issue just as well.
“The funds we’ve spoken to are not responding to the current market situation with knee-jerk reactions,” Mr Rappell said.
“They’re watching developments closely, but so far market volatility has been in line with similar risk events experienced in recent years. Fund investment strategies are generally well placed to manage these types of movements.”
Looking back at previous epidemics, such as the ebola outbreak in 2018 or the SARS epidemic back in 2003, Australian super funds have proved relatively resilient to short-term market movements. Quarterly returns during each episode have ranged between -2.1 per cent and +4.3 per cent, with markets largely unfazed over longer periods.
According to SuperRatings, funds are unlikely to implement any dramatic changes to their investment strategies without further evidence that the virus will deal more prolonged damage to the global economy.
Con Michalakis, chief investment officer at StateWide Super, said that while there would undoubtedly be some economic fallout, his fund remains focused on long-term member outcomes.
“This is a classic case of a black swan, and like all black swans, the markets struggle with uncertainty,” said Mr Michalakis.
A black swan is an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. Black swan events are characterised by their extreme rarity, their severe impact, and the practice of explaining widespread failure to predict them as simple folly in hindsight.
“What we can be sure about is that the economy in China and Australia will be slower due to the restrictions in place in the first quarter of 2020. However, from a long-term perspective, diversification and strategy based on member age and risk tolerance is more important,” said Mr Michalakis.
Suzanne Branton, chief investment officer at CareSuper, said the fund’s investment strategies were designed to provide downside protection during bouts of market turmoil.
“When new influences on the investment outlook emerge, it’s important to analyse and monitor these closely,” said Ms Branton.
“There could be a short-term impact that provides investment opportunities or avenues to adjust positioning. However, there are reasons to expect a more short-term rather than extended large-scale market impact. Our investment approach is structured to deliver downside protection so our investment program resilience to short-term volatility is high.”
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