Investment update – March quarter 2023

Here’s a look at what’s been happening in investment markets recently and what it means for your superannuation.

The big picture

Inflation and interest rates continued to dominate discussions in the first quarter of 2023. Continuous rate rises since May 2022 started to impact some international banks as they collapsed, such as Silicon Valley Bank in the US, or were forced to merge, like Credit Suisse in Switzerland.

At the start of 2023, global financial markets saw signs of inflation starting to cool. But inflation proved to be a harder challenge for policy makers. By March, the US, UK, European Union, and New Zealand central banks were still increasing interest rates to curb inflation. In Australia the RBA paused rate rises in early April, so the impact on the economy could be further assessed.

Several property developers went into receivership (Porter Davis), or into administration (Mahergroup, the parent company of Urbanedge Homes), as the cost of building remained high while housing prices started to fall. There was a small uplift in prices over March, but financial market analysts don’t see this as a turning point because there are still many home loan customers due to see their fixed interest rate expire soon. It’s uncertain how they will adjust to higher repayments.

China’s reopening at the beginning of the quarter after three years of lockdowns boosted markets around the world. It has made quite a rapid recovery, in a positive development for regional trade partners.

Even though the impact of previous interest rate rises is not yet clear, and most central banks are still raising interest rates, financial markets still expect a fall in future interest rates. This goes some way towards explaining why global share markets generally ended March in positive territory.

What happened in markets?

Australian and International Equities started the quarter on a positive note, then generally fell in February, before rebounding in March, continuing the trend of this financial year.

The falling Australian dollar contributed to these results, especially hedged funds. A lower currency exchange rate produces a higher return when converted.

Higher interest rates have resulted in decreases to the value of properties, causing returns to generally fall over the quarter, but some fund managers are producing a positive return on a financial year to date basis.

Unsurprisingly, rate rises are causing a positive return on Australian and International Fixed Interest on a monthly and year to date basis, and above the benchmark return.

How your investments are performing

All our investment options generated a positive return in this quarter, building on our strong results over the past 12 months.

And over the longer term, all our investment options are performing above their respective 10-year benchmark for investment returns.

First Super’s investment managers strive to add additional value on top of the performance benchmarks. The returns for international hedged equities created additional value from the stock selection, but the returns for the other equity investments did not perform as strongly for the quarter.

Looking ahead

Interest rate rises take a long time to flow through into the economy. Some indicators suggest they are having the desired impact, with inflation slowing as consumer spending reduces and sentiment remains low. But we are also seeing high employment rates, which can increase peoples’ spending and keep inflation high.

Are all the rapid rate rises, at times higher than expected, having the desired impact? The financial markets believe they are, and have started to factor in a rate fall, but central banks have kept future rises on the table. Only time will tell.

Need help?

To discuss your investments in more detail, you can contact us on 1300 360 988 or by emailing mail@firstsuper.com.au.

Issued by First Super Pty Limited (ABN 42 053 498 472, AFSL 223988) as Trustee of First Super (ABN 56 286 625 181). Past returns are not an indicator of future returns. This article contains general advice which has been prepared without taking into account your objectives, financial situation or needs.

You should consider whether the advice is appropriate for you and read the Product Disclosure Statement (PDS) before making any investment decisions. To obtain a copy of the PDS or Target Market Determination, please contact First Super on 1300 360 988 or visit our website at firstsuper.com.au/pds.