Market Update: Trend continues as inflation sustained

By Mark Rider, Chief Investment Officer, LGIAsuper

23 June 2022

The second quarter of 2022 has followed a similar fashion to the first, and the trend looks likely to continue for the remainder of the year with sustained inflation causing concern across global markets.

This month we announced Brighter Super as the new superannuation fund resulting from LGIAsuper, Energy Super and Suncorp Portfolio Services Limited (SPSL) coming together. 

The Brighter Super branding will be rolled out in stages with LGIAsuper leading the change on 1 July 2022, Energy Super later this year, and SPSL in January 2026. 

Brighter Super brings together the strengths of LGIAsuper, Energy Super and SPSL to deliver the best possible retirement outcomes for members.

What is happening in the market?

Over the last few quarters, markets have become increasingly concerned with higher rates of inflation around the world. Initially it was suspected that this spike in inflation might be short-lived as supply chain disruptions and government stimulus measures in response to COVID-19 worked their way through the economy. 

In more recent times, it has become apparent that inflation is more sustained. Leading the way is the commodity price shock caused by the invasion of Ukraine, which has seen prices for oil, energy and food surge, sustaining inflation at uncomfortably high levels. Multi-decade lows in unemployment are also putting upward pressure on wages. According to the U.S. Bureau of Labour Statistics, the latest reading is that the United States consumer price inflation data rose to 8.6% p.a., a forty-year high 1 .

In response to these very high levels of inflation and still extremely tight labour markets, central banks around the world have started raising interest rates to slow down the economy. While initially it was thought that interest rate rises would be measured, it now appears central banks will have to raise interest rates at a faster pace and to higher levels than previously estimated. 

This shift in the outlook for interest rates has unsettled both equity and bond markets. Interest rates could rise to a point where investors fear they will cool economic growth too much and tip the economy into recession. This sudden shift in sentiment has led to further share market weakness.

How is this affecting my superannuation?

With near-term returns under pressure across both equities and bonds, the current market conditions are negatively impacting most investment options. While we understand that this can be concerning for members, it is important to stress that superannuation is a longer-term investment. One of the keys with successful investing is not to panic in the short term. 

Markets can and do go through periods like this from time to time, just as we saw during the COVID-19 pandemic. Members who have remained invested in superannuation over the last decade have still seen very good returns despite these market ups and downs. 

Market conditions, like we are seeing currently, are also an important reminder that volatility is a factor when investing and selecting the most appropriate investment option for your risk profile is vital. 

If you have any concerns, we have an expert team of advisers and superannuation specialists who can assist you.

What is LGIAsuper doing about my investments?

One of the best forms of protection from volatile markets is through portfolio diversification. We achieve this by investing across a range of different assets and investment styles throughout the investment options. The aim of this process is to provide smoother returns to members by not putting all our eggs in one basket.

While we have touched on the impact rising inflation and interest rates are having on shares and bonds, other assets in the portfolio like property and infrastructure are expected to provide some protection against rising inflation. 

We also appoint highly skilled managers to invest and closely monitor the performance of our investment portfolios. Our managers are able to assess market conditions in light of the economic backdrop, and position our investments to take advantage of any opportunities these situations present.

What should I do? 

Before making decisions regarding your financial future, we recommend you seek personalised advice from one of our experts.  

Our financial advisers were recently acknowledged by research company Chant West, which shortlisted LGIAsuper for the 2022 Best Fund: Advice Services award. The accolade recognised our fund as a leader in providing advice services that are relevant and accessible for all members. 

We offer general advice over the phone, or you can arrange an appointment with one of our financial advisers for single issue or comprehensive personal advice. You can also book a 30 minute Super Health Check at no cost with one of our super specialists.

Call us on 1800 444 396 to discuss the type of appointment that would suit you best.

1 U.S. Bureau of Labor Statistics, Consumer Price Index Summary, https://www.bls.gov/news.release/cpi.nr0.htm, June 10, 2022.

You can view previous market update editions in our library

ESI Financial Services Pty Ltd (ESI Financial Services, ABN 93 101 428 782) (AFSL 224952) is a wholly owned entity of LGIAsuper. ESI Financial Services has engaged Industry Fund Services Limited (IFS) ABN 54 007 016 195 AFSL No 232514 to facilitate the provision of financial advice to members of LGIAsuper. LGIAsuper Financial Advisers are Authorised Representatives of IFS. In limited circumstances, a LGIAsuper Financial Adviser may also be an Authorised Representative of ESI Financial Services.
Additionally, LGIAsuper has also engaged Link Advice Pty Limited ABN 36 105 811 336, AFSL 258145 to provide LGIAsuper members with access to limited personal advice over the phone in respect to LGIAsuper and Energy Super products.