Hanging in through market shift will pay off

How many times have I biffed the business pages towards the ocean this summer?  Several, is the answer.  

January 2016.  The sun was out in force, the winds were gentle and you quietly turn the page of a newspaper in a deck chair.  Boom the storm hits.

If Dan Corbett had to present a market report his arms would fly off his body.

Black clouds set in over New Zealand and the UK with the markets down 2 to 3 per cent in 31 short days.  Rain wet the Aussie summer with the All Ords off more than 4.5 per cent.  A cyclone over Japan saw a 6 per cent fall in the Nikkei and snowstorms in both Europe and the US gave a 5 per cent tumble. 

The numbers might not sound big to everyone, but think of the time period.  It's only one month.  For perspective, you'd have to sit in a term deposit all year to earn that back.  

The Chinese tsunami continued with a 24 per cent fall in the Shanghai Composite in January.  It was all kept well greased by crude oil prices sliding a further 11 per cent in the month.  It feels truly terrifying when you realise the Chinese market has almost halved in value in six months and oil prices have come down from over US$100 ($152) a barrel to US$30 a barrel in 18 months.  

KiwiSaver catches a cold

Performance statistics in the KiwiSaver market go quiet at this time of year.  The Morningstar Quarterly report came out at the end of December and the next is not due until the end of March.  With a bit of scratching around the internet and a few phone calls, we can get a picture of what impact the January storm had on our own unit prices. 

The five largest KiwiSaver managers are ANZ, ASB, AMP, Westpac and Fisher Funds.  

While there are 16 providers, these five have almost 80 per cent of our investments.  Roughly, they control $24 billion of the $30 billion under management. 

Most KiwiSaver funds have a component invested in shares, but growth funds in particular have higher exposure.  Unsurprisingly they've all been left snivelling in the cold.  Yet most had a successful 2015 and the buffer is there to weather the storm.  As you will see from the table, losses ranged from 1.6 per cent to 2.7 per cent in January.

Back to the future

It would be foolish to deny that events in China and oil prices are not important in New Zealand.  They will certainly to continue to dominate and drive volatility in 2016.  

What is more important is our perspective.  

We can easily panic over plunging prices without having the full benefit of history at our fingertips. 

If we jump in the DeLorean and travel back in time, there is a feeling of déjà vu, even though the drivers are different.  In April 1980 oil was trading at $115 a barrel.  Six years later in 1986 it was $27.  In October 1990 it was back to $63 and in December 1998 it plummeted to $16. Ten years later in 2008 saw heady highs of $144.  By 2009 it tumbled back to $43 and in June 2014 barrels reached $105 (all US dollars).

Our current situation is primarily a supply side story.  Demand for oil has not collapsed.  Price movements are wild, but it's been a fifty-year wild ride. 

While energy companies are getting a pasting, low oil prices provide a boost for others.  The money collectively saved by consumers around they world provides an enormous wave of cash to be spent elsewhere.  It's being referred to as one of the largest transfers of wealth in human history.  Perhaps a little over-egged given we've been there several times before, but it certainly makes sense.  

While China recalibrates, growth in other world markets looks small yet sturdy.  Asset classes all have their peaks and troughs and the objective of your KiwiSaver fund manager is to under-weight and over-weight in line with major trends and provide wide diversification.  

The 2016-year may well result in subdued or limited returns, but we catch the cheaper unit prices with our regular monthly contributions and maintain perspective as the tide recedes on one asset class and comes in on another.  It certainly feels like another major tidal change is under way.  

Janine Starks is a financial commentator with expertise in banking, personal finance and funds management. Opinions in this column represent her personal views. They are general in nature and are not a recommendation, opinion or guidance to any individuals in relation to acquiring or disposing of a financial product. Readers should not rely on these opinions and should always seek specific independent financial advice appropriate to their own individual circumstances.