Investment insights

Want to know the stories behind the numbers? We had Chris talk us through the latest market activity and what’s on the horizon:

After much debate around whether the Reserve Bank of Australia (RBA) should – and whether it would – increase the cash rate, the board of the central bank officially decided to increase the cash rate by 25 basis points at its May 2022 meeting. The cash rate now sits at 0.35 percent.

This is the first time the RBA has lifted the cash rate during a federal election campaign since 2007. It’s also the first rate rise since November 2010.

It comes after the RBA lowered the cash rate to an historic low of 0.10 percent in November 2020, stating at the time that it did not envision it would raise rates until 2024.

Philip Lowe, governor of the RBA, said, “The Board judged that now was the right time to begin withdrawing some of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic.

“The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected. There is also evidence that wages growth is picking up. Given this, and the very low level of interest rates, it is appropriate to start the process of normalising monetary conditions.”

The RBA’s decision on the cash rate follows the release of data from the Australian Bureau of Statistics in late April that found inflation rose by 5.1 percent over the past year – the sharpest increase in over 20 years.

According to Lowe, further rate hikes will be needed over the period ahead in order to ensure that inflation returns to target.

The US Federal Reserve also began raising rates in March this year.

So, what does the rate hike mean for your super? Well, if you’re invested in our Cash option, you’ll be pleased to know that ANZ has passed on the rate increase for the savings account in which our Cash option is invested. For everyone else, the impacts aren’t so direct.

Our Investment team and investment managers around the globe will be keeping a close watch on central banks.

With Prime Minister Scott Morrison choosing to send Australians to the polls on one of the last dates possible, we’ve had a long election campaign of different parties trying to convince Australians they’re the better economic managers.

But what impact does an election and its result, whether it’s a change of government or re-election of the current government, actually have on the economy and investment markets?

As Chris explained, not that much. Typically, the biggest impact for markets can be the uncertainty in the lead up to an election – because as we’ve heard many times, if there’s one thing markets don’t like, it’s uncertainty.

However, the extent of the impact that government policies actually have (beyond the property market, at least) is up for debate; rather, the place of Australian investment markets is more heavily influenced by global factors and the wider economic context.

In this regard, the changing interest rate environment in the US and globally, combined with the geopolitical tensions outlined below are more relevant to investment markets than the Australian election.

The biggest story of the quarter has arguably been the situation between Russia and Ukraine.

As was expected, the West imposed a range of sanctions on Russia after its invasion of Ukraine on 24 February. Russia responded in turn with measures including a temporary embargo on all foreign investors selling Russian assets, including listed equities and bonds.

With Russia a key supplier of commodities such as oil, the various moves have led to sharp increases in commodity prices and volatility in global markets. Qantas Super’s diversified investment strategy includes exposure to energy (for example, US Gas), and these exposures have increased in value in these difficult times, helping reduce the volatility across a number of Qantas Super portfolios.

However, it’s important to remember that your super is invested for the long-term, and that volatility is a normal part of investing for the long-term.

In fact, we saw similar volatility in early 2020 as the COVID-19 pandemic began to spread around the world. While this short-term volatility resulted in many super funds delivering negative one-year returns for the 2019/20 financial year, markets quickly rebounded over 2020/21. This rebound saw Qantas Super deliver record one-year returns for the 2020/21 financial year.

While past performance is not a guarantee of future performance, students of financial history know that there have been many examples of human-caused and natural disasters that resulted in volatility at the time, but that financial markets recovered given time.