Experts have reassured Australians that the dramatic falls endured by stock markets in the past week are simply a normal part of market cycles and no cause for alarm.
Nevertheless, they’ve urged consumers to take wise precautions and begin saving.
The ASX 200, the group of companies considered as the Australian benchmark by institutional investors, hit its lowest point since April, down more than 7 per cent on the highs seen at the end of August after a bruising week that also saw Wall Street endure its worst day in eight months.
However, the dramatic slump isn’t surprising or worrying – it’s just part of the market cycle, economists say.
Speaking to The New Daily, Industry Super Australia chief economist Stephen Anthony said the recent losses were the result of several factors working together to create the “economic storm clouds” casting their shadow on markets.
These include poor tax policies, bad behaviour at some of the country’s major financial institutions and, perhaps most notably, the start of a global shift away from the unconventional monetary policies that were set in place to offset the Global Financial Crisis (GFC) a decade ago.
These unconventional policies made it easier for banks and individuals to borrow money, and the shift back to more traditional policy settings is broadly putting pressure on borrowers and crimping growth.
Principal and founder of market research firm CoreData Group Andrew Inwood said these losses are also symptomatic of a ‘late-cycle’ market correction, referring to the end of the long period of growth enjoyed by global stocks in the wake of the GFC.
“For the past year, Australians who have been really focused on the market have been expecting the market to correct,” he said.
October is also a month notorious for poor market performance, Mr Inwood said, joking that investors “may as well go on holiday” at this time of year.
None of this is cause for alarm, but Mr Anthony said it is worth preparing for tougher market conditions by putting some money away for a rainy day and reducing discretionary spending “to the extent that people are able”.
“These are things that prudent households do their best to plan for,” he said.
This is because the next couple of years look set to be tougher for the Australian economy than previous years, Mr Anthony said.
When the market will actually turn is hard to say, with both Mr Anthony and Mr Inwood remarking that this is very difficult to do.
“There’s this challenge inside markets; anyone can tell you what the future is, but they’re kind of lying to you,” Mr Inwood said.
Super savings safe
While markets look poised to enter a bear run (where investors look to sell stocks rather than buy them), superannuation savings are likely to remain safe.
Super funds have a long-term investment strategy, and Mr Anthony said the rationale behind this makes sense even in falling markets, especially for balanced funds.
Mr Inwood reinforced this idea.
“It’s not a short-term investment. We shouldn’t be trading those savings. We should be investing it. Unless you’re actively managing your super, just don’t look at it,” he said.
Dr Lee Smales, associate professor of finance at University of Western Australia made similar comments, saying that Australia’s markets are likely to fall again but “history would suggest that stocks tend to outperform other assets in the longer term”.
Longer term in this context refers to periods of more than five years.
The New Daily is owned by Industry Super Holdings.