We take a look at economic responses to coronavirus by the Australian Government and the impact on your super.
This investment update is a lot different to any we’ve ever sent you. And it’s in stark contrast to the one we wrote for you just a few short months ago.
Coronavirus has had huge consequences on the lives of our members, from the way you work day-to-day, to your super balance. So, with that in mind, we break down the current investment environment and outline what this means for your super.
First things first, there’s good news
Actions taken by governments have had a calming effect on both global and Australian share markets. As of 30 April, we have seen share markets in Australia and the United States rally 22% and 29% off their March lows, respectively.
What action has been taken?
We’ve seen lockdowns happen all over the world with the restricted movement of people and closing of borders. While this has been necessary to flatten the curve and work to beat this virus, it has had a dramatic impact on economic growth and unemployment.
In Australia, action on monetary policy has been swift. Australia’s monetary and fiscal response has been one of the most impressive in the world, totaling 16.5% of GDP (Gross Domestic Product). The Reserve Bank of Australia (RBA) lowered interest rates to an all-time low of 0.25%. The RBA also injected more money into the economy. This was done through the purchase of government bonds as well as providing $90 billion in credit to banks to help ease lending pressure.
The Federal Government has provided direct cash injections to individuals and companies – for many, a much-needed lifeline to help us all get by. The Government’s JobKeeper program allows workers to be paid a wage subsidy at a flat rate of $1,500 per employee, per fortnight for up to six months.
Coronavirus and your super
On paper, super balances have been impacted by the economic effects of coronavirus. Our Balanced option is down -3.93 for the financial year to date. For options more strongly geared towards shares, like our Active option, the news isn’t great, with this option currently down -7.46% for the financial year to do date. While these are not the positive results we usually like to report, they are better than what we might have seen without the swift action of governments.
In the middle of 2019, we also took a more defensive stance in our investment strategy. We did this on the back of interest rates at close to historical lows which left central banks with fewer levers to pull to stimulate the economy. We were then also concerned about being late in the economic cycle and valuations being stretched. As professionals, it’s our job to stay on top of these things.
If you’re thinking about switching your investment options, it’s important to consider your investment timeframe and the potential impact of switching based on short-term market movements. Switching investment options during a short-term market downturn can have a significant effect on your super balance over the longer term. It may mean locking in losses and missing out on potential higher returns by being out of the market when it recovers.
The situation is still far from over. The International Monetary Fund (IMF) expects the global economy to fall by 3% year on year and the Australian economy to fall by 6.7% in the same timeframe. Company earnings are expected to fall by double digits, which could impact the share market considerably.
In response to the economic impact of the coronavirus pandemic on financial markets, minimum drawdown amounts have been reduced by 50% for the 2019/20 and 2020/21 financial years. This allows you to choose to take less out of your account.
You can change the frequency, drawdown and amount of your income stream payments in your online account or by completing the Income stream change of income payment amount and frequency form.
While it’s still too early to know the full impact of the coronavirus, our investment team is carefully monitoring the situation and is well prepared to both manage risk and invest in opportunities arising from changing market conditions.