Brexit, Trumpageddon – have we seen it all? What’s next?

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Contribution caps update

Published 9.00am - 7 December, 2016

The financial year started off well with share markets around the world rallying in July, following the volatility at the end of June from Brexit. 

Central banks around the world stepped in early in the first quarter to stimulate markets. The Reserve Bank of Australia cut interest rates to a new record low of 1.5% in August. Share markets generally ended the quarter higher than where they started. 

In the second quarter, the surprise election of American businessman Donald Trump to the White House shocked many. The effect on global share markets has also been a bit surprising. In a volatile week around the US election (8 Nov) the Australian Stock Exchange (ASX) actually posted its best week since July, as fear subsided into optimism following Trump’s victory speech. 

In fact, when US share markets opened the day after the election, markets rallied, which flowed through to Australian shares the next day. The ASX posted its best day since 2011, jumping 3.3 per cent, and ending up 3.7 per cent higher for the week. 

The biggest loser from the Trump presidency to date has been bonds, because markets expect higher inflation and higher interest rates in the US on the horizon. This has also negatively affected ‘interest rate-sensitive’ sectors, such as listed property (where our Property option is invested). Generally, the asset classes that performed best in recent years (as interest rates fell) have been the poorest performing over the 2016/17 financial year to date, as markets expect interest rates to rise.

Looking ahead

It is still very early days to predict what the long-term effect will be on our share market. Trump will be inaugurated as President on 20 January 2017 and has around 4,000 government appointments to make between now and then. As he appoints his key cabinet positions, markets should gain a better perspective on which of his campaign promises are likely to be followed through.

Trump’s commitment to rebuild US infrastructure could stimulate growth in the short and medium term. However, this could spur some inflation in the US, which would mean the US Federal Reserve is more likely to increase US interest rates. 

Immigration and trade agreement policy changes could also have an impact but it’s hard to tell at this early stage just how big an impact, especially for Australia. It is unchartered territory and although big changes generally mean more volatility, one of our main tools to manage through this volatility is diversification. While we can’t predict the future, we can ensure that our investment portfolios are best placed to take advantage of all market factors and continue to grow member account balances over the long term. Now more than ever is a good time for well diversified portfolios.

Investment returns - 1 July to 31 October 2016*
Option nameSuperPension
LUCRF Super MySuper Balanced1.90%2.16%
Master Trust (retail funds) median1.44%1.76%

*Source: SuperRatings Fund Crediting Rate Survey – SR50 Balanced (60-76) Index, October 2016 and SuperRatings Pension Fund Crediting Rate Survey – SRP50 Balanced (60-76) Index, October 2016. Note: Past performance is not a reliable indicator of future performance.