Australian Share Market Correction

Australian shares have undergone a correction in the last few weeks, falling just shy of 10% since early May. This correction has been led by some of the ‘safest’ stocks in the market, including our big 4 banks, who until early last month, had been on an incredible run for nearly a year.

The correction in the domestic market, along with more significant falls overseas, has impacted the Superannuation funds of many Australians. The funds will still yield a positive return, as most of these balanced funds (with their heavy allocations to both Australian and overseas share-markets), tend to follow the performance of the ASX very closely.

The corrections in the equity market have been driven by two factors. The first of those is continued release of the poor economic data in the domestic market, whilst the second, is the continued market uncertainty over the Federal Reserve Bank of America’s potential ‘tapering’ of Quantitative Easing.

When it comes to the Australian economy, signs of weakness have been appearing for months. Last week we saw, retail sales figure come in lower than forecast, whilst GDP figures were 25% below market expectations for the last quarter. Earlier this week, Home Loan figures released by the ABS highlighted the fact that our housing market is stagnant, showing the recent cuts in interest rates have not stimulated the housing market as hoped.

All this data paints a continuation of the volatility seen recently in the share market. Recent data released around the mining boom slow down, and investor sentiment confused at best, means we could be headed for more of the same instead of the recovery that was looking hopeful a few months back.

With the US Federal Reserve also unlikely to taper back its money printing program and the subsequent effects this will have on world markets, it is important to consider the risks associated with investment in equity markets. We recommend clients are very cautious, and customised in their equity market positioning, and we believe in safe investments in such volatile times.

Diversification across asset classes is important, and structuring your portfolio to balance with other asset classes including bonds, infrastructure, cash and precious metals will assist in decreasing your fund’s volatility.

With the end of financial year approaching, now would be a good time to look at where your superannuation is invested, and speak to an adviser to ensure you are adequately diversified and protected.



Lynley Hukins
Managing Director