Market Overview – June Quarter 2021
31 July 2021Section Heading
Market update and impacts on your super
In 2020-21, financial markets made an outstanding recovery. The Triple S (untaxed) Balanced Default Option delivered its highest ever annual return of 21.6% for the financial year to 30 June 2021.
All Super SA’s investment options had positive returns for the June quarter, except the Cash Option, which was flat. The growth-oriented investment options delivered strong returns due to their higher allocations to share markets and unlisted markets. Given cash rates around the world are likely to be low for some time, it is expected that the Cash Option will return close to zero over the medium-term, after fees and taxes.
Triple S returns to June 2021
|
3 months |
1 year |
3 years |
5 years |
10 years |
|
|
Cash |
0.0 |
0.1 |
1.0 |
1.4 |
2.3 |
|
Capital Defensive |
2.0 |
6.6 |
4.6 |
4.7 |
5.5 |
|
Conservative |
3.0 |
11.1 |
6.1 |
6.4 |
6.9 |
|
Moderate |
4.3 |
15.3 |
7.3 |
7.7 |
7.9 |
|
Balanced |
5.8 |
21.6 |
9.4 |
9.8 |
9.3 |
|
High Growth |
6.2 |
24.5 |
10.0 |
11.2 |
10.4 |
|
Socially Responsible |
6.6 |
21.4 |
8.8 |
9.0 |
8.6 |
Returns net of fees and gross of tax, based on Super SA unit pricing formula.
*FYTD = financial year to date, that is, the return since 1 July 2020.
Global Economy
The global economy continued its recovery, supported by ongoing monetary and fiscal stimulus. The global vaccine rollout has been seen as a path for countries and economies to return to a form of normal activity. As economies have opened, investor confidence has risen due to increased manufacturing activity and corporate earnings, falling levels of unemployment, and pockets of wage growth. Financial markets have largely looked through negative COVID-19 news, such as the emergence of mutant strains and sporadic lockdowns disrupting supply chains.
The focus of financial markets has begun to shift to consider reflation, and how governments globally may wind back stimulus programs and increase interest rates. At present, central banks view inflation as transitory due to the decline in consumer prices last year as well as temporary bottlenecks in global manufacturing supply chains. As the strength of the global economic recovery continued to exceed central banks’ forecasts, market participants have started to question whether interest rates will increase earlier than central banks are suggesting.
In Australia, economic data showed improving conditions as the vaccine rollout continued. The labour market and domestic activity continued to be supported by expansionary government and central bank policy.
Share Markets
For the June quarter, international share markets performed strongly and gained 7.6% in local currency terms. The strength in share markets was driven by improving economic activity, accommodative fiscal and monetary policies, and vaccine rollouts lifting investor confidence.
The US market experienced a strong quarter, albeit with some volatility in June, after the Federal Reserve signalled interest rates may rise sooner than expected. Inflationary pressures remain a key watchpoint with the US inflation increasing 5.4% for the year to June. European share markets also performed well following positive quarterly corporate earnings reports. The vaccine rollout enabled governments across the Euro zone to loosen restrictions and economic activity was underpinned.
Emerging market equities were supported by major countries performing well. While the larger and more developed countries have experienced economic and health recoveries, many of the emerging market countries have not been so fortunate. Vaccine supply has been low and restrictive measures remain, hampering recovery. However, financial markets have looked through the slow recovery and emerging markets have delivered returns as strong as those in developed markets.
Australian Shares
Australian shares (S&P ASX 300) rose 8.5% on a total return basis over the June quarter. Sector performance was dominated by gains in Information Technology (+12.1%), Consumer Discretion (+11.6%), Materials (+9.5%) and Financials (+8.8%). The only two sectors that had negative returns were Utilities and Energy.
Property / Private Markets
The trend towards a recovery in the Australian Property market continued in the June quarter.
The significant amount of both global and domestic capital seeking premium quality assets in core locations has seen yields in both the industrial and commercial sectors reaching all-time lows.
The retail sector, which has been the laggard over the last 12-24 months, has also shown signs of improving. The caveat remains that should the COVID-19 pandemic deteriorate in terms of lockdowns, the retail asset class will bear the brunt of the impact.
Private markets (Infrastructure and Private Equity) have experienced improved valuations as economic conditions continue to recover. Australian core infrastructure funds produced modest positive returns in an environment where investors are looking for assets with stable and predictable cash flows, such as regulated utilities.
Bonds / Cash
Long-term fixed income markets generated positive performance over the quarter, despite rising inflation and a pull forward of expectations around increases in interest rates. Inflation continues to concern the market as it may trigger central banks to increase cash rates earlier than expected.
The Australian market posted positive performance this quarter, with Australian government bond yields decreasing over the period.
The Reserve Bank of Australia did not change the Official Cash Rate and the Australian cash market was flat for the quarter. The yield for cash is close to zero, and it is expected that the Cash Option will continue to return close to zero over the medium-term, after fees and taxes.