The natural and man-made disasters occurring in Japan are impacting on share and bond markets around the world.
The economies of the developed nations showed signs of sustainable growth in late 2010 and early 2011. It is, however, a slow recovery from a severe financial crisis that impacted the major developed nations globally and is still impacting some of the peripheral European countries. The global financial crisis had a smaller impact on emerging countries and most of these economies are displaying strong, resilient growth.
In the early stages of an economic recovery, confidence in the strength of the recovery can often be tested by unexpected events. The sovereign bond crisis in Europe, political unrest in a string of middle eastern countries, rising oil prices, rising interest rates in China and now the earthquake / tsunami / nuclear event in Japan are all events that are dynamically evolving and adding to the uncertainty.
In times of uncertainty investor confidence can waiver. Do I sell? Do I hold? Is now an opportunity to buy? One thing that is known is that the volatility of markets increases in times of uncertainty. If reactions to past significant events are any indication, markets tend to overreact and then recover. The movements we are experiencing in global markets are a product of this increased uncertainty.
We don’t know what’s going to happen in the future, however we do know AUSCOAL Super’s Lifecycle products are well diversified – both across asset classes and within asset classes. We have appointed a number of investment managers with differing investment styles in each asset class. This spreads the risk, which is the benefit of diversification. AUSCOAL Super engages highly skilled investment managers who have the discretion to manage their portfolios to minimise risk and get the best outcome for our members.
To illustrate the benefits of diversification, based on the changes in financial markets over the past 24 hours (as of 9am 16 March 2011) with the Japanese share market down by approximately 10.50%, the estimated impact on AUSCOAL Super’s investment options are shown alongside the financial year to date returns in the table below;
| Investment Product |
Estimated Reduction |
Financial Year to Date |
| Aggressive |
-1.62% |
12.18% |
| Growth |
-1.13% |
10.29% |
| Balanced |
-0.75% |
8.53% |
| Stable |
-0.43% |
6.78% |
| Diversified Shares |
-2.40% |
14.18% |
| Australian Shares |
-2.10% |
16.44% |
| International Shares |
-2.69% |
11.24% |
| Property |
-0.60% |
8.56% |
| Bonds |
0.05% |
4.41% |
| Cash |
0.02% |
2.70% |
AUSCOAL Super’s investment option returns for the financial year to date as at 4 March 2011. Estimated reduction sourced from Bloomberg 16 March 2011. AUSCOAL Super’s weekly investment option returns are published each week on www.auscoalsuper.com.au
Two interesting short articles follow. In the first article the Austrade Chief Economist discusses the impact the current disaster may have on trade with Japan. The second article is a case study on the impacts to the Japanese economy and stock market during and after the Kobe earthquake of 1995.
