The coronavirus might infect our superannuation accounts, but past experience suggests the effect will be short-lived.
Research from SuperRatings shows that when markets were previously hit by global pandemic fears, the recovery was relatively quick.
Quarterly returns improved in three of four situations examined.
“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,” the group said in a report.
“Quarterly returns during each episode have ranged between -2.1 per cent and +4.3 per cent, with markets largely unfazed over longer periods.”
The index SuperRatings measures is the balanced fund option.
These funds have roughly 50 per cent exposure to local and international shares, and are where the majority of Australians hold their balances.
SuperRatings found that in January the average balanced fund rose 1.9 per cent in value.
But “the start of February was a different story as markets were affected by the outbreak of the coronavirus, which led to a selloff in global sharemarkets as investors sought out safe-haven assets,” SuperRatings executive director Kirby Rappell said.
“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 to 15 per cent,” the research report said.
However “this is short-term noise and in this quarter and the next quarter markets might come off a bit,” Mr Rappell said.
“The funds we’ve spoken to are not responding to the current market situation with knee-jerk reactions.
“Fund investment strategies are generally well placed to manage these types of movements.”
All roads lead to Beijing
The quickest conduit to the Australian economy for coronavirus is through China and the hit we take from there will be quicker and harder than the impact suffered during the SARS crisis.
“These days, the Australia-China connection is much broader than during SARS,” said James Laurenceson, economist and director of the Australia-China Relations Institute at the University of Technology Sydney.
“Back then it was mainly resources, but now it includes LNG, agriculture and services like education and tourism as well,” Mr Laurenceson said.
Services have become increasingly important and create many personal connections between the two countries that have been disrupted by the travel bans instituted to slow the virus spread.
Along with tourism, the education sector has grown dramatically, with more than 212,000 foreign tertiary students, or 28 per cent of the total, coming from China.
Currently 100,000 are believed to be held up in the Middle Kingdom.
Mr Laurenceson sees a potential disruption.
“Most Chinese students study in America, with Australia, Canada and the UK being the swing providers,” he said.
“There are no travel bans to Canada and the UK, and if students decide to go there instead, they would be locked in for a few years.”
However, overall, Mr Laurenceson said “it will be a short-term hit with a big impact in the first quarter”.
China syndrome – the global picture
International group Oxford Economics believes the hit from coronavirus will be over just as quickly.
“The rapid spread of coronavirus will weaken China’s GDP growth sharply in the short term, causing disruption for the rest of the world,” Oxford said.
“We expect Chinese GDP growth to plunge to just 3.8 per cent, compared with a previously projected 6 per cent year on year in the first quarter.”
That Chinese slump will be magnified though the global economy.
“Since 2003, China’s share of global GDP has increased fourfold … This suggests that the virus has the capacity to have a much more damaging impact via the trade channel, compared to that seen during 2003 when the SARS virus struck,” Oxford said.
“We now expect global GDP growth to slow to just 1.9 per cent year on year in the first quarter this year and have lowered our forecast for 2020 as a whole from 2.5 per cent to 2.3 per cent, down from 2.6 per cent in 2019 and the weakest annual expansion since 2009.”
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