Sydney, Australia (PressExposure) February 09, 2009 -- Since the end of the financial year in June 2008, local and global financial markets continued to fall. In 2008, the Australian share market fell by 42%, its worst calendar year performance ever. In the United States, the S&P 500 index fell by 38.5% over the course of the year, and there were even larger falls elsewhere, particularly in developing markets. The last six months of 2008 also saw several of the world's major economies slip into recession, and share markets were joined by oil prices, interest rates, the Australian dollar and commodity prices, which all took unprecedented tumbles. All of this activity meant returns on many super balances stayed in negative territory for 2008.
Cash - king for a day
One investment truth that did ring true in 2008 was the value of diversification â or spreading your superannuation across different types of investments. Australian bonds, for example, delivered an excellent return of around 14% and the cash rate returned around 7% for the year. In a falling market â as we saw in 2008 â it's not uncommon for investors to think about moving their money into less volatile, cash-type investments where the return is closely linked to interest rates. Toward the end of 2008 we saw some dramatic cuts to interest rates, and it's possible interest rates will fall to as low as 3% in 2009. Considering this, it's an almost certainty that cash wonât be the big performer of 2009.
Shares to hold long-term value
For investors with an interest in share markets, the consensus amongst BT's market commentators is that 2009 will be a tough year economically, but there are reasons to be hopeful. BT's Chief Economist Chris Caton believes we may skirt around the edges of an 'official' recession, but economic conditions will be similar to the recession of the early-1990s. A worsening economy, however, doesn't have to mean share markets continue to fall. As Chris points out, share markets are forward-looking, and should have already priced in a good deal of future bad economic news. In 2009, share investors have two reasons to be hopeful: economic news, while bad, may not be as bad as currently 'priced in', and at some stage markets will begin to price in an economic recovery.
A final comment on 2009
`While current market conditions look set to continue for the near future, we may see the start of a strong rally in the mid part of 2009. Valuations in shares and property are now very attractive and some quality assets have been oversold. Overall, 2009 might be a good year but it's unlikely to be a great year.
How do falls in share markets affect my super?
Generally, super is invested in shares in Australian and international companies, as well as listed property, cash and government bonds. How much you have invested in each type of asset class depends on your investment choices (you may have chosen to invest in a growth fund with a large allocation to shares, a conservative fund with a large cash component etc). When economies slow and consumers stop spending, as we saw in 2008, company profits fall and their share prices follow.