Chief Investment Officer update

Investment market volatility

As many may be aware, share markets have been volatile lately. The weakness is being driven by rapidly changing expectations for inflation (higher) and growth (lower) for the next few years. Inflation is running at its highest levels in 40 years. This inflation is being caused by supply chain issues as a result of post COVID stresses, the Ukraine/Russia conflict, and COVID related lockdowns in China.

An important uncertainty for investors is how long it takes for inflation to revert to levels that central banks are targeting. Higher interest rates have important implications for households and businesses alike. Some economists are concerned that central banks, in their effort to control inflation, will raise interest rates too far or too fast which could cause economic growth to decline. This could result in recession, globally or in Australia.

However, we should remember that recent weakness in share markets comes on the back of very strong recent performance. In fact, returns have been very strong for a number of years now which has translated into growth in the average member balance over time, notwithstanding episodes of market stress.

Although share markets can exhibit periods of volatility, we should remember that we invest across multiple asset classes and various strategies, not just shares. This diversification means that members are less exposed to share market movements.

Whilst we should expect interest rates to rise from here, they will likely stay low by historical standards. Also, whilst falls in markets can be difficult to stomach, on the bright side it means that valuations, for shares and bonds, are now much more attractive on a forward-looking basis than what they were 6-12 months ago. So, we are on the lookout for opportunities the current environment may present.

Some members may be tempted to switch investment options during periods such as this. However, research has shown that, generally speaking, members can be better off staying invested, through the good and not so good times, rather than trying to time the market. We should also remember that superannuation is a long-term investment and that periods of volatility over shorter time periods should be expected.

If you have any questions, please contact us. Alternatively, if you would like to discuss your investments in more detail, we encourage you to seek financial advice. Your first appointment is at no additional cost.


Andrew Howard
Andrew Howard, Chief Investment Officer