Superannuation to suffer as market falls toward ‘correction’ territory

Losses in oil stocks touched 20 per cent over the day while a string of top stocks fell 10 per cent or more – big banks wilted again, falling between 6 and 8 per cent. Picture: AFP

Suddenly, we are in a new phase of a sharemarket downturn that is moving from a conventional “correction” to something altogether more ominous. Your superannuation fund will not have reported for February yet, but it will almost certainly be negative for the year.

Like the virus itself rapidly spreading into new territories, this sharemarket reversal is fast, furious and worse than many expected.

A 7.3 per cent drop on the S&P/ASX 200 on Monday stands as the biggest one-day fall since the global financial crisis (GFC). In total, we are down 19.9 per cent from the top in early February and a “bear market” is now a clear and present danger.

With Westpac chief economist Bill Evans forecasting a recession, it can take weeks for any visible slowdown in GDP or unemployment to become clear.

But declining holiday bookings, lower auction clearance rates and lower oil prices might be the first tangible signals we get that this market reversal has morphed into a full-scale economic interruption.

Super funds, too, will soon show the impact of falling markets. Most funds reported double digit returns last year and 2020 had kicked off with a 1.9 per cent lift in the month of January.

But leading industry figures - including Future Fund chair Peter Costello - had continually warned investors not to expect bumper returns to continue.

Industry analysts suggest year-to-date returns up to the end of February for the most popular “balanced” funds will show a drop of about 3.8 per cent. For a worker on a starting balance of $100,000 this would mean a loss of $3800.

“It is worth noting the conservative funds held by older investors with less money in growth funds will hold up better than average,” said Kirby Rappell, the chief executive of research group SuperRatings.

Oddly it was lower - not higher - oil prices that initially pushed global markets lower on Monday. Higher oil prices triggered market downturns in the past. But in the extremely volatile atmosphere of current markets, lower energy prices are being read as yet another softening global confidence indicator.

Losses in oil stocks touched 20 per cent over the day while a string of top stocks fell 10 per cent or more – big banks wilted again, falling between 6 and 8 per cent.

The outstanding question from here is how badly the sharemarket drama might infect related sectors such as banking and property?