How long shares and super fund investments will stay stick
Aussies shares have recovered some of their coronavirus losses in the past two weeks but are still almost 25 per cent weaker than they were in February. Here is how you spot the bottom.
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Our sharemarket has plunged almost 25 per cent since February, our super funds have been battered, and the big question on many Australian minds is how long this investment pain will last.
Some market watchers say the sharemarket is now effectively on sale with discounts everywhere, while others warn of more falls to come.
Whatever happens next, it’s clear that shares are much cheaper than they were earlier this year, even after a mini-rebound in the past two weeks.
And with many superannuation funds holding about 50 per cent of members’ assets in Australian and overseas shares, every dollar going into people’s super through employer and personal contributions is now buying more assets at lower prices.
Trying to pick the bottom of the market is a fool’s game, but understanding the signs to watch out for might help you eventually grow back your wealth faster.
ECONOMIC HIT
Saxo Markets head strategist for Australia Eleanor Creagh said financial markets were no longer just looking for government stimulus measures to combat the coronavirus.
“More pressing is the containment of the virus itself,” she said.
“In our view, markets will not truly stabilise without the spread of the pandemic slowing with an eye to lockdowns being lifted.”
Ms Creagh said nobody yet knew the full scale of the COVID-19 crisis and it was almost impossible to estimate the depth and duration of the hit to global economic growth.
“Even those best placed, the companies themselves, have opted to withdraw guidance on earnings,” she said.
Ms Creagh said she was sceptical of any lasting “relief rally” until the contagion was under control, transmission rates were reduced and the infection curve was flattened.
Bell Direct market analyst Jessica Amir said there was “light at the end of the tunnel” for investors.
“After 2020 has been and gone, coronavirus is not likely to have a long-lasting effect on the economy,” she said.
REBOUND
“Once there is a treatment on the market and new cases halt, and business returns, markets are expected to rebound.
“And global economic growth will likely surge and be above trend from 2021-2023. And then normalise after that.”
Ms Amir said long-term investors could be ahead of the pack if they held onto their shares.
“Not only have you avoided turning a paper loss into an actual loss, but you also won’t miss out on the market bounce back when it comes,” she said.
Nobody would know when the market reached its bottom until much later, Ms Amir said.
“Looking at the GFC as an example, we lost 50 per cent from late 2007 to early 2009,” she said.
“If you sold out in that time, you probably turned your paper loss into an actual loss, but you could have missed out on the rebound of 59 per cent over the next year or so.”
BetaShares chief economist David Bassanese said the message to investors was “this too shall pass”.
“If you are a long-term investor seeking income from shares, those income streams are generally fairly reliable over time, especially if you have a diversified portfolio of blue chip stocks through ETFs (exchange traded funds),” he said.
FIND VALUE
“We face some tricky times over the next few months, but by next year we will be past this with a vaccine and a degree of immunity in the community reducing virus risks thereafter.”
Mr Bassanese said now could be a good time to be averaging into the market as long as people appreciated “we may not have touched the bottom”.
“From the perspective of a few years, stocks are presenting value – especially blue chips with strong long-run earnings and dividend potential,” he said.
“But you want to avoid undue exposure to any one stock or sector.”
CommSec chief economist Craig James said the Australian sharemarket’s fall had been consistent with other overseas markets such as the US.
“While the Australian sharemarket is down from highs, those highs weren’t seen as sustainable,” he said.
CORRECTION WAS DUE
“The sharemarket had become expensive and the expectation was that the market was at risk of a correction or perhaps a lengthy period of consolidation. In other words, earnings needed to catch up to share prices.”
Mr James said Australia’s economy was likely to remain weak for much of this year, and the outlook for investors was all about COVID-19.
“It is about finding treatments and a vaccine,” he said.
“It is about containment of the COVID-19 cases. It is about flattening the curve. The course of future events is largely out of the hands of policymakers. It is now up to the medical experts.”
Mr James said governments and central banks had been supporting businesses and citizens through the crisis with temporary measures.
“While shareholders – especially those that rely on dividends for income – will be disappointed that dividends may not be paid or will be delayed, they are keenly wanting to see companies come out of the crisis in reasonable shape,” he said.
Originally published as How long shares and super fund investments will stay stick
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