ANZ Smart Choice Super Investor Update : Member Update Spring 2014
Investment performance: Putting recent market volatility into context 5 - 20.5 - 13.2 -7.0 1/5/12 to 4/6/12 (34 days) Period 1 Period 2 Period 3 Period 4 Current Period 21/7/11 to 4/10/11 (89 days) 14/9/12 to 16/12/12 (63 days) - 7.0 20/5/13 to 25/6/13 (36 days) -8.9 27/8/14 to 15/10/14 (50 days) - 10.1 - 10.9 -6.8 -9.3 2/9/14 – 13/10/14 (42 days) 1/5/12 to 4/6/12 (34 days) 15/5/13 to 25/6/13 (42 days) 30/10/13 – 12/12/13 (43 days) Period 1 Period 2 Period 3C u rrent Period Markets have been volatile both in Australia and globally since mid- September. Concerns over the slowdown in global economic growth has seen investors exit share markets. While downward movements are concerning, it is important to note that such fluctuations are not unusual. On the contrary, they are quite normal and can be a healthy part of the market cycle. Australian share market recent declines As the chart below shows, the current period of market correction in Australia is in fact the fourth in the last two and a half years. On each of these previous occasions, markets have returned stronger and higher. Global share market declines in the past three years Global markets have also experienced similar periods in the recent past, with the current episode being the fifth in the last three years. The current market decline is well short of the drops seen in 2011 and is below that experienced in the first half of 2012 (see below). Despite four corrections in the market of at least 7% each, Australian markets have risen by 29% in the past two and a half years. Global shares (in US dollar terms) have risen 24% over the same period. MSCI World Index in USD (% decline) ASX 300 Price Index (% decline) Chart source: Bloomberg. Is it different this time? While no one can predict how markets will perform over the short-term, we are of the view that current valuations and the economic backdrop should provide ample ground for share markets to recover over time. Valuations – when one delves deeper into the market declines, one will see that the drop has happened despite a general rise in earnings in the US and Australia. This means that prices on average have actually become relatively inexpensive and somewhat attractive. Economic – current growth in the global economy, while less than c expected, is in line with what we’ve seen over 2012 and 2013, periods where markets performed well. Also, with continued easing by many developed market central banks, we remain in a supportive environment for share markets. In summary, market corrections are not unusual and based on past corrections, we may be closer to the end of the current correction than the start. While the outlook for Europe and China are key, our view is that neither a European recession nor a hard landing in China is likely. Source: Bloomberg, ANZ Global Wealth. Source: Bloomberg, ANZ Global Wealth.
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Member Update Winter 2014