Australian superannuation balances have taken a significant hit due to turbulence in US share markets, as escalating trade tensions and recession fears continue to weigh on investor sentiment.
Wall Street experienced another sharp downturn this week after former US President Donald Trump, in a Fox News interview on Sunday, did not rule out the possibility that his tariff policies could push the US economy into recession and trigger inflationary pressures.
“We’re going to have disruption, but we’re OK with that,” Trump stated, emphasizing that market fluctuations should not be the primary concern. US stocks have now erased all gains made since his election.
The Nasdaq Composite suffered its worst single-day decline since September 2022 on Monday, with Tesla shares plummeting 15%, while other major tech stocks, including Apple and Nvidia, also faced heavy losses.
Impact on Australian Markets
The ripple effect from Wall Street sent the Australian share market into the red, with the ASX 200 shedding more than $49 billion in value on Tuesday.
“Be alert, but don’t be alarmed,” advised Kirby Rappell, Executive Director of SuperRatings. Data released by the superannuation research firm on Monday revealed that super fund returns turned negative in February, marking the second monthly decline for the financial year.
Despite the Reserve Bank of Australia cutting interest rates for the first time since November 2020, both domestic and international share markets—key drivers of superannuation performance—declined due to renewed concerns over Trump’s trade policies.
SuperRatings reported that the median balanced option fell by 0.8% in February, while the median growth option dropped 1.2%. However, the more conservative median capital stable option posted a slight 0.1% gain. Pension returns followed similar trends, with balanced pension options down 0.9%, growth options falling 1.4%, and capital stable options gaining 0.1%.
Long-Term Outlook and Investor Strategy
Despite recent volatility, super funds have still delivered a cumulative return of approximately 7% for the financial year. Rappell remains optimistic, stating that if funds successfully navigate the coming months, members are on track for a positive full-year outcome.
With March already showing signs of further turbulence, he advised investors to maintain a long-term perspective.
“This is the first notable return of market volatility in some time, so it’s natural for people to take notice,” he said. “However, short-term fluctuations should not distract from long-term investment goals. Superannuation is a long-term strategy, and members should avoid reacting to daily market movements.”
Exposure to US Markets
Nearly half of Australia’s $4.2 trillion superannuation assets are invested in international markets, with US equities forming a substantial portion of these holdings. Rappell noted that exposure to Wall Street’s volatility is largely unavoidable.
“As super funds grow, international diversification becomes increasingly necessary. The US market is too significant to ignore, and in the long run, exposure to global markets is crucial for strong returns,” he explained.
The key challenge, he said, lies in how funds manage their exposure to US equities, identifying potential opportunities while mitigating risk.
Options for Concerned Investors
For superannuation members worried about market turbulence, Graham Cooke, Head of Consumer Research at Finder, suggested shifting to a lower-risk investment profile within their super fund.
“Adjusting your super settings can be as simple as selecting a more conservative investment mix,” he said. “However, lower risk means slower recovery if markets rebound.”
Cooke highlighted the global economic uncertainty, particularly for those approaching retirement.
“For Australians nearing retirement, market downturns are a major concern—many still remember the financial hit from the Global Financial Crisis,” he said.
Superannuation Sector Growth
Despite recent market volatility, Australia’s superannuation sector continues to expand. NAB’s Super Insights Report 2023 revealed that offshore investments accounted for 47.8% of total portfolios, with many large funds planning to increase their international holdings over the next two years.
John Bennett, NAB’s Executive for Markets Corporate and Institutional Sales, noted that this trend reflects the ongoing global diversification of superannuation investments.
According to the Australian Prudential Regulation Authority (APRA), total superannuation assets grew by 11.5% over the past year, reaching $4.2 trillion as of December 31. Contributions also surged by 14.8% to $198.1 billion, with employer contributions rising 10.8% to $144 billion and member contributions jumping 26.7% to $54.1 billion.
Meanwhile, benefit payments increased by 12% to $124.4 billion, driven by a 7.8% rise in lump sum withdrawals ($68.2 billion) and a 17.5% increase in pension payments ($56.2 billion).
While short-term volatility remains a concern, experts emphasize that a long-term approach remains the best strategy for superannuation investors navigating uncertain global markets.
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