COVID-19 spreads through investment markets this financial year
The 2019/20 financial year began reasonably well. The first part of the year saw slowing economic growth and continuing low inflation across regions, with accommodative monetary policy from central banks supporting bond and equity markets, which were generally higher. However, the period was also marked by increased volatility, punctuated by back-and-forth US-China trade tensions.
The trade tensions temporarily abated with a preliminary ‘Phase One’ trade resolution between the US and China announced in mid-December. Sharemarkets responded well to this news, continuing their positive run, with emerging markets being the largest beneficiary.
This positive sentiment continued into early 2020. However, from mid-February, attention shifted to the rapid global spread of COVID-19, no longer considered a China-only issue. In response, governments around the world implemented varying degrees of general public lockdowns to contain the outbreak, leading to a sharp contraction in economic activity and record falls in global sharemarkets. As investors favoured perceived safety, government bond yields fell as prices rose, with further support provided by central banks cutting interest rates sharply and restarting or expanding quantitative easing (bond buying) programmes.
However, almost as quickly as they fell, risk markets recovered over the remainder of the financial year, recapturing much of their losses. This was despite the continuing uncertainty of COVID-19 fundamentally impacting numerous businesses, with the positive sentiment supported by substantial and enduring fiscal and monetary support.
In Australia, in line with global monetary policy responses, the Reserve Bank of Australia (RBA) reduced the cash rate twice in March, to end the financial year at a new record low of 0.25%. Fiscally, the Federal Government announced three separate stimulus packages totalling more than $200 billion, which were coupled with further State-driven initiatives.
Economic data weakened, as the unemployment rate reached 7.1% by the end of June 2020, and GDP contracted by 0.3% in the March quarter with the Treasurer declaring Australia to be in a technical recession based on an expected negative June 2020 quarterly GDP result.
Australian shares, as measured by the S&P/ASX300 Index, fell 7.6% over the financial year. The Australian market felt the full force of the COVID-19 impact from mid to late February. However, in the June quarter, despite the weak economic data, and in line with global markets, the market recovered part of its fall and returned 16.8% for the quarter, reacting to the policy support and then gradual relaxation of social restrictions. There were pronounced differences in industry sector performance over the year. The Energy (-29.4%) sector was the weakest performer, on the back of a sharp falls in crude oil prices. In contrast, Healthcare (27.3%) and Information Technology (19.7%) were the best performing sectors.
International shares, as measured by the MSCI World Index ex-Australia, experienced significant COVID-19 volatility over the latter half of the financial year, but overall rose 1.9% on a hedged basis (in AUD). Unhedged returns were greater (5.8%) due to a depreciation in the Australian dollar relative to most of the major currencies over the year. The post-March recovery was not broadly based, with a narrow group of predominantly technology companies, driving sharemarkets.
Australian unlisted property fell 2.7% over the financial year, in contrast to double-digit losses in listed property.
Similar to last year, bond markets performed relatively strongly, off an historically low yield level. Australian bonds returned 4.2% for the 2019/20 financial year.
The RBA cut the cash rate by 25 basis points in October to 0.75%. In March, there were two further cuts of 25 basis points each time with the current cash rate at 0.25%.
Impact on super funds
The impact of COVID-19 on economies and investment markets around the world created significant volatility and subdued results for all super funds. As a result, the majority of super funds delivered negative returns for the 2019/20 financial year, while some funds delivered positive returns, but only just.
Like other funds, Maritime Super’s investment performance was impacted by COVID-19. Our investment strategy remains focused on the long term to ride out the tough times we face now. If you have any questions about your investments, call 1800 757 607 to speak with a financial planner.
The information on this page has been issued by Maritime Financial Services Pty Limited (MFS). It contains general information that doesn’t take into account your individual objectives, financial situation or needs. It’s important to consider how appropriate this general information is in relation to your situation before making an investment decision. We recommend that you seek financial advice before making any decisions regarding your super or investments. The information on this page is current at the time of publishing.