21 March, 2022

Market Update – Markets bounce back, volatility continues

Three ongoing themes have continued to affect financial markets the past week – the conflict between Russia and Ukraine, interest rates and inflation. Equity markets bounced back following renewed confidence that the current conflict in Ukraine will not spill over into other countries. However, most Fixed Income markets had negative returns as markets priced in an increased number of interest rate increases.

Spirit Super’s philosophy of investing is best encapsulating by the statement that “it is time in the market, not timing the market” that contributes most to the retirement outcomes of our members. During periods of market volatility, we keep our disciplined approach towards investing for the best financial outcomes across longer time horizons - regardless of whether recent market movements have been in the upward or downward direction.

In markets this week

Equity markets bounce back

Most global equity markets had large positive returns across the last week, recouping most of the losses that have been incurred since the outbreak of conflict between Russia and Ukraine.

In the US, the S&P 500 bounced back significantly with a weekly return of 6.2%. This was its strongest weekly result since November 2020. The S&P500 is now in positive territory for March (plus 2.1%). There was a similar rebound in European equities, which returned 5.5% across the week and also returned to positive territory for the month-to-date.

The Australian market continued its positive recent movement, up 3.3% for the week. The local market is now up 3.9% for the month.

These positive equity market movements helped lift the performance of all of Spirit Super’s investment options that have an asset allocation to equity.

Global interest rate hikes, although Australian rates remain on hold

Both the U.S. Federal Reserve and the Bank of England lifted interest rates by 0.25% this week, and both also signalled that further rate rises would be likely across coming months. These interest rate increases are a response to global inflation recently hitting multi-decade highs.

Increasing interest rates generally cause negative returns in Fixed Income markets, as bond prices are lower when rates are higher. The actions by central banks pushed the global Fixed Income benchmark to a negative return across the week (minus 0.3%), continuing the downward movement in this asset class across the month-to-date (minus 1.4%).

The Reserve Bank of Australia (RBA) released the minutes from its most recent meeting, which pushed back hard against the notion that interest rate rises are imminent in Australia. However, given movements in other countries, Australian interest rate markets have priced in an expectation that rates will increase more quickly than the RBA’s current timeline.

The market’s expectation of rate increases has also created a headwind for Australian Fixed Income returns, which are down 0.76% across the last week, and in negative territory across the month-to-date (minus 2.21%).

The negative returns across Fixed Income markets have caused a drag on the performance of Spirit Super’s investment options that have an asset allocation to this asset class.

Oil price relief

The price of crude oil remained above the price immediately prior to the Russian invasion of Ukraine. However, its price has declined by more than 15% from its peak on 8 March. An easing of oil prices improves expected business profitability, and therefore increases equity market prices, given oil is a key input cost in most supply chains.

A reduction in oil prices might also mean relief at the bowser in the near future.

Attention turns to the Chinese stock market

The performance of the Chinese economy tends to be important to global investors. Spirit Super’s investment options only have a small direct exposure to Chinese securities, but many of the companies that we invest in are exposed to the Chinese economy.

Stocks of Chinese companies sold off sharply across early 2022 amid concerns about COVID-19 outbreaks and rising geopolitical tensions. Across the first two days of last week, the Hong Kong stock index declined by approximately 10% and closed at its lowest level in more than six years. However, the Chinese government announced a series of stimulus packages that restored investor confidence, resulting in the market rebounding by 9% on Wednesday.

Chinese equity markets tend to be more volatile than markets in developed economies such as Australia and the U.S. Any sustained equity market drawdown in China is expected to adversely affect Spirit Super’s portfolios.

5 tips to deal with market volatility

  • Don’t panic – super is a long-term investment. Most investors can ride out short term fluctuations.
  • Stick to your plan — don’t make knee-jerk decisions. Consider your long-term investment goals and stick to your long-term investment plan. · Understand volatility — know how volatility affects your super (see our Market volatility fact sheet)
  • Get advice before switching – switching investment options at the wrong time can lock in your losses. If you’re thinking about switching, get advice from the experts.
  • Know we’ve got this – our Investment Team closely monitors global markets and has strategies in place to protect your super. So, relax. We’ve got this.


Volatility and your super

Volatility is part of having money invested in super. Heightened volatility can cause your superannuation balance to increase or decrease across a short period of time. However, your superannuation is managed to achieve the best financial outcome across the long-term.

Spirit Super has continued to deliver on its return targets. As at March 2022, all of our pre-mixed investment choice options have outperformed their return objectives across their minimum investment horizons. For example, the Balanced Option has returned an average of 8.57% per annum across its minimum suggested time horizon of 7 years (9.48% per annum for Pension members).1

Another important point to note about volatility and superannuation is that the middle of a highly volatility periods is rarely the right time to de-risk portfolios, as this often results in losses being “locked in”.

Spirit Super’s Investment Team applies a forward-looking risk management approach and seeks to re-position the portfolio before such developments. This is exactly what we did across the second half of 2021 and early 2022, where our pre-mixed portfolios were shifted from a slightly “risk-on” posture to a slightly more defensive one.

It is natural to consider switching investment options during periods of elevated market volatility. However, always remember that superannuation is a long-term investment. Changing your investment option(s) in response to short-term volatility is an important decision and should take into account a number of factors such as how long you are investing, your personal risk tolerance, and what part superannuation plays in your overall retirement planning goals.

We recommend members carefully consider any superannuation investment decisions and get appropriate advice before making a decision. We also suggest that you understand the option(s) that you are invested in and review the objectives, performance and asset allocation of that option.

Get the right advice for your situation

It's natural to feel concerned about heightened volatility and how it affects your retirement savings.

That's why we're here to help.

If you're thinking about switching investment options or are unsure which option is best for you, please get in touch.

You can also book a one-on-one chat with one of our expert Superannuation Advisers. They can offer helpful, straightforward advice to ensure your super is working for your situation.

This service comes at no additional cost – it's part of being a Spirit Super member. To get in touch or book an appointment, call 1800 005 166 or submit an online enquiry.

Important information:

1 Past performance isn’t a reliable indicator of future performance. The value of investments can rise or fall, and investment returns can be positive or negative.

This article is for general information only and doesn’t take into account your objectives, financial situation or needs. You should assess your financial position, personal objectives and needs before making a decision based on this information.

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