Around September, you’ll notice that markets dropped quite quickly. This was in part because investors were still uncertain about the economic outlook, and how much interest rates would rise. You might remember that during COVID, Central Banks – including the Reserve Bank of Australia – had talked about interest rates being on hold for a long time, even until 2024. So the changing environment, in which interest rates were raised rapidly, caused markets to react negatively.
But as investors began to focus more on an eventual, sustained pause in interest rates, we saw an overall rise in global markets. This is a normal part of investing, and we expect markets to go up and down over time.
You can see that, generally, this financial year has been good news, with markets recovering over the past nine months. Most members will have seen an increase in their retirement nest egg as a result.
Investing is a long game
As the saying goes, it’s your time in the market, not timing the market that counts. Trying to invest just before prices rise, and selling just before they fall, is not only nearly impossible – it’s also not as effective as investing for the long-term.
For instance, things that performed poorly in the past year can have a great year the next.
At Aware Super, investments that didn’t perform as well in 2022, were good performers for us this year. Like our investment in international shares. And our preference for ‘growth’ shares, which have been winning off the back of the tech sector’s recent resurgence.
While we always consider how current events might affect our investments in future, we don’t over-react to short-term noise.
Looking ahead, there are some key things we’re monitoring:
- Inflation is coming down
- Economy has been resilient, but we are seeing cracks
We’re seeing signs of inflation coming down, and over time we should see interest rate rises control this further. But goods and services like housing, education and healthcare that prove slower to steady in price could see inflation continue. So we might still see some rate rises over the next year.
We know a slowdown in the economy is coming - that’s the intended goal of the central banks as they try to curb inflation. The question now being asked is how slow will it get? In other words, will there be a mild recession or a deep one?
What are we thinking about, heading into financial year 2024?
Looking forward, the economic backdrop we’ve faced over the past year is likely to continue. Even if we have seen the peak of interest rates (which is not certain), inflation is still high and ongoing global geopolitical tensions are likely to make markets volatile at times, and affect returns.
At the same time, it’s important to remember that economic cycles (which include periods of expansion as well as contraction) are normal and expected. And the good news for investors is that markets are forward-looking, which means that they have already priced in the prospect of a slowdown and may not therefore fall significantly if a serious slowdown eventuates.
As we invest, we are always thinking about the long-term, but also about how current market conditions and themes might impact our view of the future.
Read our full Market Review and Outlook