COVID-19 Market Update: A tale of two curves

Over the last couple of months we’ve anxiously watched the COVID-19 global pandemic spread rapidly around the world and interrupt almost every facet of our lives.

We’ve seen local and international governments help combat the spread of COVID-19, by introducing preventative measures, resulting in the forced closure of many businesses leading to a sharp increase in unemployment putting pressure on economies and livelihoods.

It’s a tale of two curves; the curve of the global pandemic, and the curve of the economic fallout from the large-scale disruption.

There is still considerable uncertainty for the Australian economy and we are likely to experience our first recession in 28 years. However, the strong and swift responses from government and financial institutions, including the Reserve Bank of Australia’s broad monetary policy package and the decision to cut interest rates to an all-time low are helping to increase support to the market and economy.

In addition, the Federal Government’s various economic fiscal stimulus packages, including the JobKeeper program are helping to support jobs, incomes and businesses, while assisting with the country’s economic recovery.  Such unprecedented policy response from governments and central banks around the world has helped to stabilise financial markets.

Thankfully, COVID-19 appears to have peaked in Australia, leading to improved investor sentiment and rebounds in market returns, with equity markets up more than 30% since their lows towards the end of March 2020.

Weathering the storm

Large falls in stock markets and asset prices around the world resulted in negative returns for all super funds over the first quarter of 2020.  

In Australia, shares in the S&P/ASX300 were down 23.4% for the first quarter, with listed property dropping 34.4%. We are now seeing early signs of a market recovery from the March lows, with Australian shares having their best month, since 2000, in April returning 8.8%. 

The broad diversification among investments in your super has helped reduce some of this volatility, with losses limited to a small range of 1%-5% for our diversified options.*

Most of our members invest in the Mercer SmartPath® investment option, which is designed to move with you throughout your career and into retirement. This active investment strategy factors in the volatile nature of financial markets, gradually changing your asset allocation as you move closer to retirement age, helping to protect your super balance from market fluctuations.

Members approaching retirement were sheltered from the biggest declines, with people aged 57 and older experiencing only modest declines, when comparing to the rest of the industry. For members at retirement age (over 67 years old), as at April 30, have experienced falls of -1.6% for FY2020 thus far, ahead of the industry average of -3.7%.^

For members under 51 years of age, after a long period of strong performance experienced larger falls in their super balances. These falls were caused by a greater exposure to growth assets, like listed shares that can be more volatile in the short term. However, as these members’ super will remain in the market for longer, this provides an opportunity to recover and grow their super balances over the long-term.

Although these are challenging times, you can have confidence that Mercer’s investment strategy is working hard to ensure your super is well positioned whether you are still accumulating super or thinking about retirement.

At Mercer Super, our priority is to keep you informed about changes, help you understand what they mean, and provide support so you can make the best decisions for your own personal circumstances. 

The changes to the market may prompt you to reconsider how your super is invested, we recommend you speak with your financial adviser before taking action. As a Mercer Super customer, you have access to direct support over the phone by calling 1800 682 525.

Reference

*SmartPath and Ready Made Investment Options FYTD to 30 April 2020.

^ SuperRatings Fund Crediting Rate Survey – Default Options April 2020.

 

27 May 2020