Regional pressures with global repercussions

From soaring energy prices across Europe, a potential credit crisis within the Chinese property market, to debt ceiling issues in the US, each region faced its own pressures during September 2021. 

Global markets were cautious as concern grew over inflation levels, and as central banks indicated imminent changes to their economic views and interest rate policies. 

Key economic insights from around the globe

Australia 

The race to get Australians vaccinated ramped up in September 2021. As NSW soared ahead, closing in on its 70% double dose vaccination target, plans to roll back restrictions and re-open the economy took shape. Victoria is set to ease restrictions at the end of October as it is expected to reach its 70% vaccination target. Unlike NSW residents, Victorians will have to wait until the 80% double dose target for more significant changes.

The Federal government also announced changes to the COVID-19 support payments in line with the improving vaccination rates. Once states reach 70% double dose, people will need to re-apply for their benefit each week and at 80% double dose, the COVID-19 support payments will be withdrawn completely. This is expected to hurt industries that take longer to recover from lockdowns, such as entertainment. Despite this, consumer sentiment improved in September, seemingly supported by the vaccine rollout success and the near end of lockdowns.

In other news, Australia signed a significant defence deal with the US and the UK which included building US designed nuclear-powered submarines. This alliance is designed to counter China’s growing military influence in this area, but it has come at the cost of Australia’s relationship with France, with a previous deal between the two countries to build submarines now null and void. 

US

The US ended the month grappling with its government’s debt levels that threatened the operation of government services including social security and defence. However, the debt ceiling was raised in early October, avoiding a possible services shutdown.

The unemployment rate decreased as businesses continue to reopen and jobless numbers remained above pre-Covid levels. Markets are optimistic the downward trend will continue. Indicators showed the US Federal Reserve (Fed) will likely keep interest rates on hold for now, but Fed Chair Jerome Powell has suggested it will move away from the pandemic crisis mode in the coming months.

The US also announced plans to allow quarantine free travel for vaccinated international passengers in a move to increase tourism. But the Center for Disease Control (CDC) urged US citizens not to be complacent and to make sure they are vaccinated to protect themselves.

Asia 

China found itself in the global spotlight after its second-largest property developer, Evergrande, teetered on the edge of collapse. Employing over 200,000 people, the company enlisted advisers to help manage its debt crisis in mid-September. It subsequently announced the sale of a US$1.5 billion stake in a local bank to raise capital and the People’s Bank of China also stepped in to inject cash and maintain liquidity in the financial system. Evergrande’s share price has plummeted 85% year to date. 

Japanese markets reacted positively to the resignation of Prime Minister Yoshihide Suga after just one year in office. The Prime Minister has been broadly criticised for his inability to get COVID-19 under control, hampered primarily by slow vaccination rollouts, including his government’s insistence in pressing ahead with the hosting of the Olympics in July – all of which proved costly to his approval rating.

Europe 

Energy bills made headlines in Europe after low inventory, high Asian demand, high carbon prices and outages, all threatened to significantly impact households and businesses. Some companies have already stopped trading, unable to survive the price pressures. But with upcoming increased winter demand, potential government policy responses are being discussed including household subsidies and loans to energy companies. As energy is a major driver of inflation, this elevates concerns over the EU’s ongoing loose monetary policy.

How did markets react?

Global share markets were generally down over the month. In Australia, the energy sector boomed, but material and healthcare struggled, the latter impacted by increased pressure on hospitals from the lifting of lockdown restrictions. Elsewhere, the threat of an Evergrande default pulled all markets down, except for Japan, which rallied after the Prime Minister’s resignation.

Fixed interest markets remained cautious over inflation levels, particularly with the energy price issues in Europe.

What does this mean for your super?

With around 90% of allocation to growth assets such as international and Australian shares and property, members in the BT Super and BT Super for Life 1970s, 1980s, 1990s and 2000s Lifestage investment options saw weaker returns over September, receiving returns between -2.20% and -2.09% for the month. However, the one-year returns continued to be solid, with members earning between 22.72% and 22.84% for the 12 months ending 30 September 2021.

Members in the BT Super and BT Super for Life 1960s Lifestage investment option, which has growth exposure of around 60%, were less impacted by the share market declines and saw returns of -1.76%% for the month, and 15.24% over the year to 30 September 2021. 

The 1940s and 1950s Lifestage investment options are designed to have less exposure to growth assets to help cushion their members’ super balances from market fluctuations. Over the month of September, member returns were -1.26% and -1.39% respectively, with the allocation to defensive assets softening the impact of share market declines.


Performance returns by asset class as at 31 September 2021

   
Asset Class
   
1 month
%
   
1 year
%
   
3 years
(p.a) %
   
5 years
(p.a) %

Growth assets

       
Australian shares 1.89 30.86 9.87 10.52
International shares -3.76    28.28    11.63    13.44   
Emerging market shares -2.84    17.29    8.64    10.50   
Australian listed property    -1.94    30.69    9.21    7.66   
Global listed property -5.32    29.14    4.76    4.36   

Defensive assets

       
Australian bonds -1.51    -1.54    4.14    3.06   
International bonds -0.97    -0.79    4.07    2.72   
Cash 0.00 0.04 0.79 1.20

 

Source: BTIS. Australian shares - S&P/ASX 300 Accumulation Index, International shares - (unhedged) MSCI World ex Australia Net Return in AUD, Emerging market shares - MSCI Emerging Markets EM Net Total Return Index (AUD), Australian property - S&P/ASX 300 A-REIT Accumulation Index, Global property - FTSE EPRA/NAREIT Developed Hedged in AUD Net TRI,   Australian fixed interest - Bloomberg AusBond Composite 0+ Yr Index, International fixed interest - Bloomberg Barclays Global-Aggregate Total Return Index Value Hedged AUD, Cash - Bloomberg AusBond Bank Bill Index. As at 30 September 2021. Past performance is not a reliable indication of future performance.

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The month of August 2021 was dominated by the resurgence of COVID-19’s Delta variant. Its presence continued to accelerate the negative impacts on global trade, with supply chains and manufacturing under severe pressure.

When it comes to reaping the rewards of super, it is time in the market, not timing the market. In other words, to make money, stay invested for as long as you can, and try not to worry about knowing when the 'best' time is to invest.

Our Lifestage super investing adapts as you move through stages of your life, with higher returns when you’re younger and reduced risk closer to retirement.

The information is prepared by BT Funds Management Limited ABN 63 002 916 458 (BTFM) the trustee of the following products:

(a) BT Super for Life, BT Super for Life Westpac Group Plan and BT Super part of the superannuation fund Retirement Wrap ABN 39 827 542 991; and
(b) Asgard Employee Super Account part of the superannuation fund the Asgard Independence Plan Division Two ABN 90 194 410 365. 

This information has been prepared as general advice only and does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to your personal objectives, financial situation and needs before acting on it. Read the Product Disclosure Statement (PDS) to see if these products are right for you by visiting bt.com.au or asgard.com.au. Past performance is not a reliable indication of future performance. All examples are illustrative only. Your portfolio value and performance will depend on the investment options you have selected and the time over which they are invested. 

Investment returns are historical. Investment returns can move up or down and past performance is not necessarily indicative of future performance. Future performance is not guaranteed. Performance differences between the investment options and respective underlying funds exist due to factors such as valuation timing differences, differences in fees and charges, distributions (as cash may be retained for liquidity purposes) and higher cash holdings. More information on the asset allocation and risk exposures of each fund can be found in the PDS.

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