Disclaimer: What you're about to read is of a general nature and doesn't take into account your personal financial situation, needs or objectives. We recommend you seek financial advice before making any decisions about your super and consider the relevant UniSuper PDS and TMD.
Lyndon: Hello, this is Super Informed Radio, the official UniSuper podcast. My name is Lyndon, and today we are actually sharing a market update with UniSuper's Chief Investment Officer, John Pearce, because, as I'm sure you will be aware, financial markets are highly volatile at the moment and a lot of UniSuper members—myself included—will be wondering what it all means for our superannuation, and what UniSuper's position is on all of this. We couldn't get John in the studio today, but we do have him on the line. John, hello and welcome.
John: Hi Lyndon, it’s nice to be here, although I would prefer it was under different circumstances, obviously.
Lyndon: Yes, I am sure of that. Now, John, let's just start from the beginning here. We all know what's happened—Donald Trump has announced the imposition of tariffs on all imports to the US. Given we knew it was coming, why has the market gone into such a meltdown?
John: Yes, indeed, we all knew it was coming. Can I just preface what I'm going to say, Lyndon, by saying that this is not the first crisis that I’ve faced, and indeed, I'm sure, the COVID crisis is very fresh in the memory of most of our members, and indeed even the GFC. Just like all those crises beforehand, we will cope with this, and we will get through it. However, there has been a bit of pain that’s already been endured and there will probably be a bit more to endure.
Back to your question, why has the market gone into meltdown when we knew it was coming? It’s basically because of the magnitude and the breadth of what’s been announced. As we know, Trump’s announced tariffs. The level of tariffs that, if indeed they stay where Trump has announced, this takes the US back to about 1910. So more than a century ago when the US was so tariffed—and that is effectively a declaration of an economic war. That might sound melodramatic, but that’s the way I think others are interpreting it, and so am I. We all knew that China was going to be in the firing line, and indeed China is now facing tariffs of around 54%, which is a whopping number. But what’s taken people by surprise is the breadth of tariffs, and nobody’s being spared—whether you are a friend or foe, you have got a tariff. And indeed, Australia is facing a 10% tariff, clearly on the lighter end of the scale, but it just goes to show you the breadth. Why is this translating into a market meltdown? It’s because we’ve all upgraded our probability of not just a US recession, but maybe even a global recession. After all, tariffs are bad for global trade, definitely bad for the US consumer. This is going to effectively be a tax—a consumption tax—on the US consumer. So, our probabilities of a recession have been upgraded.
Lyndon: In terms of the market reaction, John, exactly how big of a meltdown are we talking about here?
John: Unfortunately, whenever I mention numbers at the moment, they go out of date almost as you’re talking. So, let’s draw a line in the sand. We'll talk about close of business last Friday (4 April 2025). So, as of close of business last Friday, from peak to trough, in the US market, we’re looking at a fall in excess of 20%. In Australia, we’ve been slightly more cushioned—we’re down about 10% from peak to trough over that same period.
Now, most importantly, how’s that translating into option returns, which of course our members are ultimately interested in? It’s not as bad. It’s more cushioned. The worst performing options, as you’d expect, would be those options which are fully exposed to the US and global markets more generally. Indeed, our International Shares option is down close to double-digits since the beginning of this calendar year.
As I speak, I can see that markets—I’m looking at my Bloomberg screen—I’m seeing markets down about 4%, so there’ll be further deterioration from the numbers that I quoted if we rule it off now. Interestingly, if you look at our Balanced option, our default accumulation option, calendar year to date it’s only down about 3.5%. So, it’s been quite cushioned, and it’s really demonstrating the benefits of diversification.
Lyndon: So, in the context of markets in free-fall, John, are we at the bottom of that free-fall, or is there still more to go? What are your thoughts there?
John: I’d love to have a crystal ball, Lyndon, but it will only be in hindsight that we’ll know when the market has hit a bottom, unfortunately. Let me talk about the range of outcomes, and there’s clearly a wide range. Let's say the pessimistic range of outcomes, we’ll have a drawn-out battle. That’s a situation where the big countries—China, in Europe—are not willing to get to the negotiating table. To date, we haven’t seen them come to the negotiating table, and China has announced their retaliatory measures already. Let’s hope that’s another negotiating position.
On the more optimistic side, we have already had a few countries come to the table—Vietnam, for example, has announced they will pretty much cut to zero all tariffs on American imports. India, which is a very significant country, is saying they won’t retaliate, but they are expecting a bilateral deal. So, there are some signs of positivity there.
Where this all ends up, as I said, time will tell. In terms of my own conclusion, I’m at the moment leaning on the side that this is going to be a bit drawn out. But even regardless of negotiations, the reality is that damage has already been done, and when we talk to companies, it’s clear that companies are putting off investment, there's a lot of uncertainty there. They’re pulling back on all manner of activities. The US consumer is, as you could imagine, understandably, nervous about everything. So, we can already see some signs of the US economy softening. So, on balance, the market move has been somewhat justified, and it’s difficult to see where the catalyst will be from for an immediate bounce-back. But we could just hold these levels pending a negotiation with the major countries.
Lyndon: Now John, being the Chief Investment Officer of UniSuper, you really are the person to speak to about UniSuper’s investment strategy. Can I ask, is that being impacted at all by any of this?
John: Well, having now managed crises starting from the 1987 share market crash, Lyndon, the one common thing in terms of my response to these crises is: focus on liquidity, liquidity, liquidity. And what do I mean by that? It’s to ensure that we have enough cash in the Fund to enable us to meet our commitments as they arise without having to liquidate any assets in crumbling markets. And that’s exactly the position that we’re in. We’ve already seen an uplift in member switching behaviour, to date that’s been a bit of a trickle, frankly, but I imagine that is going to be increasing this week. We will not have to sell assets into this very, very weak, illiquid market to meet that switching activity.
Medium-term, I think there are big asset allocation decisions to be made. In particular, like every other fund in Australia, we have quite a large exposure to US assets, and that’s been a very good place to be investing over the last couple of years, particularly given the US tech story. We’ll be questioning that commitment. Frankly, I think we’ve seen peak investment in US assets. This is the irony of the whole thing, Lyndon. Donald Trump prides himself on being a great businessman and good for business. Well, Donald Trump is turning out to be horrible for business. In fact, when I think about American corporate exceptionalism, which I actually did believe in given the American tech scene, the biggest threat to American corporate exceptionalism is indeed Donald Trump. Like every other fund, we are questioning our exposure to the US. It would be fair to say that we’ve hit peak exposure and will be reducing over time. Now’s not the time to be reducing that exposure, however.
Lyndon: Very good. And finally, John, I also just wanted to ask as well—I mentioned this in the intro—a lot of UniSuper members, and I suppose people in general, will be wondering what all of this means for our superannuation. We’ve probably seen a bit of a dip in balances already, I know I have. Do you have any key messages at this point for our members?
John: Well firstly, I’ll just remind people that there are potential positives out of this. Even if Europe and, say, China, don’t actually come to the negotiating table straight away, what is likely to be the response is some announcement around stimulation of their own economies. Aggressive stimulation, I notice as I look at my Bloomberg screen, China is indeed making some noises in that regard. That could be a positive for the economy outside the US, and particularly for Australia.
Getting back to member behaviour, I mentioned switching activity before. What we’ve seen time and again through history during a crisis is that members tend to switch at the wrong time. It’s very hard to get this timing right. Indeed, many members do actually switch out of risky assets at the right time but then they stay in defensive assets, and they don’t get that bounce-back. We know that markets, time and again, they do bounce back, and they can bounce back very sharply. If you miss that, you could pretty much crystallise a lot of losses, because as I said it’s difficult to get that timing right. So, the message to our members, particularly our younger members in accumulation phase that are able to ride out volatility, it’s a matter of just staying the course. They are in this for the long haul. This is not going to be the last pull back in share markets that they’re going to see.
Of course, that could be a completely different setup for members who are closer to retirement or who are in retirement. For those members, yes, I really empathise. Volatility is a painful experience. Hopefully, you’re getting advice from the right people. UniSuper does have options to cater for all needs in terms of risk-return profiles, so as I said, it’s really important to make sure you’re getting the right advice.
I want to conclude on the point I made at the outset, Lyndon, that we will get through this crisis. When you think about COVID, the GFC, and I remember investing money during those times. There were periods then when frankly, we didn’t know what the solution was. During the GFC, when we had the financial markets collapsing, banks collapsing, et cetera, we actually didn’t know if indeed there was a solution. During the depths of COVID, we didn’t know what the timing was for an effective vaccine or even if there was going to be an effective vaccine.
Contrast that with the current crisis. The current crisis, it’s man-made. And it’s made pretty much by a single man. We know what the solution is here, the solution is for rational people to get around and understand the havoc that they have created and get to a sensible compromise. We know what the solution is, and let’s hope that common sense prevails. In the meantime, we might have to endure just a bit more pain.
Lyndon: We are all praying for those adults in the room. John, look, thank you again so much for joining us today. I know it's a busy time, a busy day for you, and we do really appreciate you taking the time out of your day to speak with us. So, thank you so much.
John: Thanks, Lyndon.
Lyndon: And that wraps up this episode. Thank you so much for listening. Now, if you would like more information about UniSuper's investments and investment options, please visit our website because you will find a range of resources there. We'll also include some additional useful links in the show notes of this episode as well. You can subscribe to this podcast, Super Informed Radio, wherever you get your podcasts, and you'll find John's investment update videos on our website and on our YouTube channel. Thank you again for listening, and we'll see you next time.
This podcast is general in nature, and it doesn't take into account your financial situation, needs or objectives. So, before you make any decisions about your super, we recommend that you seek financial advice first. Also, make sure you've had a read of the Product Disclosure Statement and the Target Market Determination that's relevant to you. They are all available on our website. It goes without saying that the past performance of any investment options that we talk about isn't indicative of their future performance, and it's worth noting as well that just by talking about certain companies, we aren't endorsing them for you to include in your own portfolio. Also probably not a bad idea to mention that certain information contained in this podcast may include forward-looking statements, and we obviously do not guarantee that these statements will eventuate. And lastly, UniSuper has no obligation to provide updates or changes to the information in this podcast.