Investment update – September quarter 2023

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

Interest rates to remain higher for longer

In the last quarter of the 2022-2023 financial year, data suggested inflation was slowing, though it remained high and needed to come down further. With inflation moderating, financial markets believed central banks would pause further interest rate rises, and expected rate cuts later in 2023. Financial markets were optimistic, and the quarter started well with global stocks generating positive returns.

That sentiment started to change in August, when investors’ concerns grew about inflation and central bank policies, plus economic weakness in China, and so global financial markets became volatile, and shares fell.

In September different views emerged, with some central banks commenting that rates will remain unchanged, only rising if necessary. We certainly heard that line from the Australian Reserve Bank as the outgoing Bank Governor Philip Lowe was replaced by Michelle Bullock. While in the UK, the Bank of England deemed it necessary to raise interest rates by 25 basis points to 5.25%.

Investors took the view that interest rates would remain higher for a longer period of time, possibly until the second half of 2024, to ensure inflation fell back to the respective central banks’ expectations.

Financial markets become more volatile

The outcome of this change was a significant shift in global financial markets.

The change in global financial market sentiment resulted in widespread sell-off across equity markets, especially in September 2023, which caused the share market to fall in value and generate negative returns.

However, most international and Australian equity markets remain positive for the financial year-to-date.

The signal from central banks about interest rates, and the resulting financial market expectation for interest rates to remain higher for longer, resulted in the continuing repricing of bonds with higher yields being offered. This causes the bond market to fall in value and generate negative returns.

How your investments are performing

Australian and international infrastructure and cash added the strongest value to our members’ retirement savings, outperforming their sectors’ benchmarks for the quarter.

Cash performed strongly due to the impact of higher interest rates, and this was supported by the Fund being overweight in cash. This means we have invested a higher percentage of members’ money into cash.

With widespread sell-off of global equities, the negative return for hedged international equities was minimised, with the return being better than the benchmark.

Higher yields resulted in negative returns in Australian and international fixed interest. While Australian fixed interest had a negative return that was less than the industry benchmark, international fixed interest saw losses that were greater than the negative benchmark expected.

The other notable negative return was Australian private equity.

Looking ahead, volatility will continue

Interest rate rises remain on the table. The slowdown in the fall of inflation has made the financial markets rethink their position and expectations.

The war between Israel and Hamas in Gaza may have a negative economic impact on oil prices. This, combined with the impact of other geopolitical conflicts, can feed inflation and further impact financial markets.

Until core inflation (which is the change in the costs of goods and services, excluding energy and food sectors) starts to move more strongly towards the expectations of central banks, global financial markets remain a complex and challenging environment.

We’re here to help

While this may sound worrying, remember market volatility is a normal, short-term part of the investment cycle, and your super is a long-term investment.

If you have concerns about your super investments, or you’re planning to switch the way you’re invested, we’d encourage you to speak with us first. We’re easy to get hold of, with most members only waiting a few minutes to speak to a real person. Contact our Member Services Team 1300 360 988 or email us.

Stay up to date with investment updates by visiting our Investment updates and Investment returns and crediting rates pages.

Disclaimer
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 contacts 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.