The global slump in share prices has made itself felt in superannuation accounts in October, wiping more from funds than they gained in the whole September quarter, according to research house Chant West.
The September quarter saw the average growth fund (with 61 per cent to 80 per cent in growth assets) rise by 2.3 per cent. However, once October’s dives in local and international markets took hold, growth funds fell as much as 4.1 per cent, Chant West found.
The figures also demonstrate how sensitive super balances are to share market movements. On October 16, when the S&P/ASX 200 index was down 5.5 per cent for the month, super growth funds were down 2.3 per cent.
On October 25, with the market down 8.3 per cent for the month, growth funds were down 4.1 per cent. However, after a rise in world markets overnight, this loss for super had eased back to 3.8 per cent by mid morning on October 26, Chant West analyst Mano Mohankumar said.
For conservative portfolios the declines were less marked. On October 25, the conservative category was down 1.5 per cent while the following night’s international bounce pushed it up slightly to be down 1.4 per cent for the month.
The gains in super accounts over the September quarter were driven by stronger share markets across the globe. For the quarter, Australian shares were up 1.5 per cent leaving them in positive territory but well behind overseas counterparts.
International shares gained 5.4 per cent in hedged terms (accounting for changes in currency values) and an even stronger 7.4 per cent in unhedged terms as a result of the Australian dollar slipping in value from US74c to US72c.
Listed property also helped drive growth in the quarter with Australian and international REITs (property trusts) gaining 2 per cent and 0.3 per cent respectively.
“These falls don’t come as a surprise as investment markets have had such a strong run over the past nine years. Most asset sectors were fully valued or close to it,” Mr Mohankumar said.
Given that the growth or balanced-fund sectors typically have about 65 per cent of their portfolios invested in shares and REITs, further falls in super fund values can be expected if the share market slump continues.
“However people have to remember that for the past nine years, growth funds have returned an average of 9 per cent a year, so we have had an extraordinary run since the global financial crisis,” Mr Mohankumar said.
That has built people’s accounts and means a decline this year is not a disaster.
Fund returns have been stronger than expected in recent years, and Mr Mohankumar said that people should not expect those stellar performances to return quickly.
“We are going to encounter challenging times ahead.”
“We can’t expect 9 per cent a year going forward as the system is not designed to deliver that. It is designed to return 3.5 per cent above inflation,” Mr Mohankumar said.
This chart demonstrates how strong performances have been, with returns easily outdoing the benchmark for long periods over the last 20 years.
The Chinese share market has been in a serious slide, losing 25 per cent over the calendar year.
However, Mr Mohankumar said Chinese shares would not greatly affect super funds as they had relatively low exposure.
“But China could make itself felt in the macroeconomic landscape if its economy weakens,” he said.
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