Coronavirus led market volatility
February 27, 2020
After a volatile second half to the financial year, investment returns recovered some of the losses suffered during the COVID-19 driven market volatility.
It's normal to see cycles of exceptional highs followed by periods of lows and sometimes even negative returns. This is known as market volatility.
Market update from our Chief Investment Officer - Graeme Miller
Hear the latest update from our CIO Graeme Miller who answers some of the frequently asked questions we are receiving from members.
January 2021Previous updates by Graeme Miller, Chief Investment Officer
CIO Market update - 19 October 2020
CIO Market Update - 30 June 2020
CIO Market Update - 3 June 2020
CIO Market Update - 12 May 2020
CIO MARKET UPDATE - 1 May 2020
CIO market update - 15 April 2020
CIO market update - 05 April 2020
CIO market update 29 March 2020
CIO market update 20 March 2020
Market volatility FAQs
Why is there volatility in share markets?
Share markets fluctuate in their value because stocks shift constantly in supply and demand and can generally be bought and sold quickly. Shares can react rapidly to market forces, global events, the general market mood and investor sentiment.
There have been clear economic implications arising from the international and domestic measures implemented so far in an attempt to contain the spread of Coronavirus. Travel restrictions and the quarantine of millions of people have interrupted supply chains, impacted the revenues of tourist operators, airlines and firms that depend on discretionary consumer spending, and overall, these companies have seen their share prices fall amid a broad sell-off in equity markets.
It’s important to keep in mind that while periodic negative returns in share markets are not welcome, they are not unusual, and super funds are aware of this when developing their long-term investment strategies.
How bad were the market drops earlier this year?
The market falls from late February to late March occurred following a strong period overall for the domestic and most global share markets. In part, this fall can be seen simply as a temporary price reversal of the unusually large gains we’ve become accustomed to in recent years.
Our investment team prepares for scenarios like this, and while your super balance may have decreased in the short term, we are still generally on track to meeting TelstraSuper’s long-term investment objectives. Our view is that members should not make knee-jerk reactions to this volatility but rather consider the recent market movements in the context of their long-term investment objectives.
For an update on how markets performed please see the latest investment returns.
Has the market recovered?
If you’re struggling to keep track of where the markets are at the moment, you’d be forgiven. Global equity markets were at all-time highs and began to fall in late February as a result of the COVID-19 pandemic. In the span of approximately one month equities fell over 30%.
Since then the recovery of equity markets has varied significantly depending on the country. As of 1 September 2020, the Australian stock market (ASX 300) has rebounded 31.9% and the United States’ S&P 500 has recovered a staggering 57.6% from their respective market bottoms. The S&P 500 increased so rapidly it surpassed its previous all-time market close high (set just before the COVID-19 market fall) on the 18th of August . The Australian stock market remains 16.6% below its previous all-time high as of 1 September 2020.
Will my super be affected?
All investment options with exposure to shares are likely to be affected, especially in the short-term. Generally those options with higher allocations to shares will be more adversely affected than those with lower allocations. Financial markets can be volatile in times of change and uncertainty; however, it is important to keep in mind that superannuation is a long-term investment and over the long-term, market ups and downs often tend to even out.
Should I switch investment options?
The recent volatility caused some people to lose their confidence, and in response they switched their super to cash at market lows. However, now markets have rebounded it may be tempting to switch back into higher risk options.
If you are considering a change to your investments it’s important to remember that super is a long-term investment and therefore your strategy should suit your risk tolerance regardless of what the markets are doing.
What is TelstraSuper doing with their investments to minimise the impact?
We build our portfolios with the goal of generating positive long-term real returns; however, we have been expecting heightened volatility around the COVID-19 pandemic.
Our options are diversified across many asset classes, meaning the risk is spread between some assets that reacted positively and others that have reacted negatively to the news (as an example, shares in health care companies and holdings in defensive assets like government bonds are expected to perform well in the current environment).
Towards the end of January 2020, we started to adjust our portfolios towards a more conservative asset allocation position, as we became aware of the potential risks associated with Coronavirus. We did this by selling part of our share portfolios and purchasing foreign currency. This action has thus far delivered a measure of protection against the recent market volatility.
Would it be easier for me to move my money to cash or a term deposit?
It’s important to remember that although markets are volatile, super is long-term investment. Switching during downtimes can crystallise losses impacting your long-term savings.
You can either discuss the move with either your own financial adviser or we can put you through to a TelstraSuper Financial Planning Adviser to discuss your investment strategy in more detail.
Should I move my money to a safer investment?
The principles of long-term investing even in times of high market volatility are the same. It is important that you plan for your future and stay with that plan. Make sure your asset allocation is in line with your personal goals, amount of time you have to reach those goals and your comfort level with investment risk.
You can speak to one of our financial advisers by phone regarding your super generally, available as part of your TelstraSuper membership.
If you need more complex advice, TelstraSuper Financial Planning can provide advice on a broad range of financial topics including contributions and retirement planning.
I am nearing retirement or in retirement should I be making any changes?
Although markets are volatile, super is a long-term investment - even in retirement. You should speak to your financial adviser or a TelstraSuper Financial Planning Adviser before making any decisions.
How we can help you
- See our latest unit prices
- Learn more about investment risk
- Log into SuperOnline