Investment market update, Q4 2024-25

In this episode of ESSSuper’s Exploring Super podcast, we dive into economic updates and market commentary focused on the April to June 2025 quarter with ESSSuper Investment Manager Marie Cardaci.

Transcript

Audio file 

investment-market-update-q4-2024-25.mp3 

Transcript 

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You're listening to Exploring Super, the exclusive podcast for ESS Super members. 

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Welcome to Exploring Super, the exclusive podcast for ESS Super members. 

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I'm Felicity Brasher, the Group Executive of Member Engagement, and here with me today is... 

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My name is Christian Kueng and I'm the Manager of Member Education. 

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And today we're joined by Marie Kadachi, who's one of EWS Super's investment managers. 

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And she's here to provide economic updates and market commentary for the April to June quarter, plus some more up-to-date commentary in our latest edition of Exploring Super. 

00:00:38 

So welcome, Marie. 

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Thank you. 

00:00:39 

Good to be here. 

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Terrific. 

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So we might kick off with our first question. 

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Marie, what have been some of the key movements we've seen in the investment markets in the final quarter of the 2024-25 financial year? 

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It was an eventful quarter to 

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to say the least. 

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It started with President Trump effectively triggering a global trade war when he introduced broad-based import tariffs. 

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This kicked off a really volatile period in markets as investors processed the impacts of the tariffs. 

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At the same time, geopolitical tensions continue to escalate in Europe and the Middle East. 

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Despite all the headlines though, looking back it was another period of strong performance for growth assets. 

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So global stocks rose 9.4% in local currency terms over the quarter and a big driver was the Magnificent Seven stocks or the Mag Seven. 

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So this is a group of companies that members will be familiar with like Apple, Tesla, Nvidia, and they're highly exposed to the AI theme and have grown to be a reasonably large proportion of the broader stock market. 

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Now, many have questioned the high valuations of these companies, but they have continued to deliver really strong earnings results over time, including those announced in the past earnings season. 

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Okay. 

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Now, closer to home, the ASX 300 also had a strong quarter. 

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It was up 9.5%. 

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And like in the US, technology stocks perform strongly driven by companies like Live 360. 

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That's like a family sort of tracking app. 

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I'm aware of that one. 

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Do you know that one, Kristen? 

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But the big story continued to be Commonwealth Bank. 

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So it returned 22.4% over the quarter. 

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Now it's a very high return for a stock which is usually more stable. 

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Outside of equities, we saw property and infrastructure investments remain broadly stable over the quarter and credit also held up reasonably well despite volatility in yields. 

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But global bonds returned over 4% in local currency terms and Australian bonds 2.6%. 

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Thanks Marie. 

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Now tariffs from the US, their new administration has been very well publicised and causing a bit of upheaval in global trade. 

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Can you give us an update on some of the impacts globally? 

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The announcement of the tariffs by President Trump, which he termed Liberation Day, sent the global stock market falling 16% over the next few days, so from sort of late March to early April. 

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So investors were worried about the potentially negative impact of the tariffs. 

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So economists broadly believe 

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that tariffs dampen economic growth while exerting upward pressure on inflation. 

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And all in all, those conditions are broadly negative for growth assets such as stocks. 

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Okay. 

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Now, there continues to be a lot of debate about which companies will be the winners and losers from the tariffs. 

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So some industries are more exposed to tariffs than others, such as healthcare companies and car manufacturers. 

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And stocks in those areas did broadly sell off more during that volatile period. 

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Right. 

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After the initial sell-off, market sentiment turned more positive and the stock market bounced back as tariff news eased and the US economy continued to show resilience. 

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Now, the stock market has really continued to show positive momentum ever since, even reaching record highs, although with lots of ups and downs sort of along the way. 

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Yes. 

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Now, back in Australia, the impact on the stock market of the tariff announcements was smaller than overseas, and that's because our companies export less to the US 

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compared to countries such as China and Mexico. 

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And the tariff rate that was imposed on Australia was relatively low as well. 

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But if you think about the sort of more direct impacts, those are yet to be seen. 

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And as an example, Australia's sort of close link to the Chinese economy means that high tariffs on China could negatively impact our economy as well. 

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Now, another interesting impact was how bond yields reacted to the news. 

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So bond yields fell at first, meaning that bond prices increased, and that's what you would sort of expect in a flight to safety. 

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But just a few days after Liberation Day, bond yields surprisingly spiked and the USD depreciated against major foreign currencies. 

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Now, these moves were in part driven by global investors 

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reassessing the US's status as a safe haven for their investment. 

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Now, given that higher bond yields essentially mean higher borrowing costs, such as for the government, for businesses, for individuals like ourselves. 

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And so President Trump acted quickly to implement a 90 day pause on the full amount of tariffs. 

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And then we did see yields sort of come down and normalize again after that. 

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Now looking ahead, the tariff picture is still uncertain. 

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We're monitoring several dynamics. 

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as a team, such as the extent to which businesses will pass on higher costs to customers, how consumers will respond to higher prices, whether and the extent to which supply chains shift across countries, and also the ultimate cost of the tariffs for companies. 

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And we're starting to see companies report on that impact on their bottom line. 

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And as an example, Apple has warned the market that tariffs are likely to cost 1.1 

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billion USD in the coming quarter. 

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Wow. 

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Yeah, so impacts like this will feed into market performance over time. 

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Wow, that's a lot. 

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So, Marie, we've seen a little bit of movement also with the RBA and other central banks pausing interest rate cuts. 

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What do you think the reasoning for this has been? 

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Yeah, you're right, Felicity. 

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In the 2024 calendar year, central banks around the world started cutting interest rates, and that was as inflation eased from those really 

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high levels we saw in the post-COVID period. 

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So Europe was relatively early. 

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They first started cutting in June last year. 

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The US Federal Reserve did its first big cut of 0.5% in September last year. 

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And then the Reserve Bank of Australia was a bit more hawkish, but they did eventually follow with its first rate cut in February earlier this year. 

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Recall that well. 

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Yeah, I did. 

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Inflation did come within the desired ranges 

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across key economies, but it was proving stickier than some central banks would have liked. 

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Right. 

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Also, following Trump's election and as news of the tariffs came through, central banks feared that inflation would start to increase again or remain at higher levels because after all, tariffs act like an additional tax on goods. 

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So it does increase inflation. 

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So as a result of all of this, several central banks announced a slower 

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path to rate cuts and in some cases they paused altogether until the outlook was clear up and this included in Australia and the US. 

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Yes. 

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Throughout August, though, we did see the RBA resume its rate cutting cycle and recent economic data from the US have some economists hoping that the Fed may start cutting again at its next meeting in September. 

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Let's hope so. 

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Yeah. 

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Overall, though, the central banks sort of continue to remind markets that it remains data-driven and focused on the outlook for economic growth and inflation. 

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And so the outlook is still uncertain on rate cuts. 

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Right. 

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Okay, that's great. 

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Okay, Marie. 

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Now, how have you seen world events translate to the fund's investments for the financial year? 

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Yeah, so I'm pleased to say that all of our accumulation plan investment options outperformed their CPI linked objectives over the past one and three years to the end of June. 

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That's fantastic, isn't it? 

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That's great. 

00:08:38 

Yeah, so that result really reflects inflation easing, while at the same time seeing positive returns across almost all of our asset classes that we invest in. 

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Now, as well as inflation 

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objectives, we also compare how our options perform relative to a survey of super fund performance, which is compiled by super ratings. 

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So positively, over the past three financial years, four of our nine investment options achieved top quartile performance. 

00:09:08 

Wow, that's fantastic. 

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Yeah, so this was helped by our asset allocation versus peers. 

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Now, our peers are a diverse group, of course, but broadly, we were overweight, strong 

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performing asset classes like listed equities, infrastructure and private credit. 

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And at the same time, we were underweight asset classes which experienced lower returns such as government bonds and property. 

00:09:32 

Marie, so what do you mean by underweight or overweight in those asset classes? 

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Good question, Christian. 

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So when we refer to an overweight, it means that relative to our peers, we had more invested in a certain asset class and an underweight would be the opposite. 

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So we had less invested 

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in those asset classes, like I mentioned, such as government bonds and property. 

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Thanks for clarifying. 

00:09:55 

No problems. 

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Now, while the sort of past three years, our performance has been very positive versus peers, the last financial year was more challenging with six of our nine investment options underperforming the peer median. 

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Now a key reason for this was that in aggregate, our active equities managers struggled to keep up with the passive benchmark. 

00:10:17 

Right. 

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So the benchmarks in both Australia and overseas have become relatively concentrated and our active equity fund managers were broadly... 

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underweight those stocks which drove the strong equity market performance. 

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Now, it's worth noting, though, that our balanced growth option, which only invests in passive equity strategies, has finished top quartile within the Super Ratings Balance Survey over the past one, three, five, and seven years. 

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Oh, we're just showing off now. 

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Yeah. 

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So we're really proud of that, of that, how that option has performed. 

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Overall, our focus 

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remains the same, we're investing portfolios in a way which allows members to benefit from strong market performance when it's there, but also show resilience in the face of global uncertainty like we've experienced recently. 

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Yes. 

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Well, Marie, thank you very much for coming in today and sharing your insights. 

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We look forward to having you on again. 

00:11:16 

Great. 

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Thank you so much for having me. 

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That wraps up our episode of Exploring Super, the exclusive podcast for ESS Super members. 

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We look forward to producing more content for you at ESS Super, proudly serving our members. 

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If you'd like more information about our investments and products, please go to esssuper.com.au. 

00:11:40 

This podcast is of a general nature only and does not consider your personal circumstances, financial needs or objectives. 

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Before acting on any advice contained in this podcast, please download and read the relevant product disclosure statement and target market determination found on our website, e00super.com.au. 

00:12:00 

The board recommends that you seek financial advice before acting upon this information. 

00:12:04 

Investment returns cannot be guaranteed as investment markets can be volatile. 

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As a consequence, returns can be positive or negative. 

00:12:12 

Past investment performance is not a reliable indicator of future performance. 

00:12:17 

Benefits in EWS Super's accumulation plan, income streams, and beneficiary account products are not guaranteed or underwritten by the Victorian government or EWS Super. 

00:12:28 

Any institutions mentioned by name does not constitute endorsement. 

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Super Ratings is a third-party superannuation research company providing data analysis, information and commentary to both the public and the superannuation industry. 

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Refer to superratings.com.au for more information.