The Lucky Country..
Just to be an Australian means we’ve won the lottery; health, lifestyle, economy, democracy, natural resources. By most metrics, we’re ahead of the averages.
On the metric of retirement savings, we’re almost top and still ascending so we could also call ourselves the “Super” country.
From July 1 this year, employees will have to reserve 12% of their annual wages for their retirement. Given that the Baby Boomer generation are the wealthiest generation in terms of retirement savings but for most of their working lives were contributing between 3 and 9% per annum of their wages, future generations will be very wealthy indeed at retirement. There’s the obvious challenge that those future generations have a reduced savings capacity in the meantime (i.e. deposit for a home) as more of their pay packets go to super but there’s also the question of what do super funds do with all that extra money. According to Cath Botwell, Chair of IFM Investors in a recent ABC article who invests for Industry funds, they have around US$2 billion every week flowing into super to invest.
Some of this money goes into Australian government bonds, plenty into Australian stock markets and the rest into an investment mix including property and overseas investments. For government bonds, it’s a bit circular; the government is borrowing money for us (the public) from us (the super investor). However, our stock market is completely saturated with super money. At the start of July, CBA makes up around 12% of the whole ASX stock market and just Australian Super alone held around 3% of CBA, let alone all the other funds. The ASX 200 had a good 24/25 year, particularly given the Trump tariff volatility, but a big chuck of the total return on the ASX last year was solely due to CBA, which earned the title of world’s most expensive bank. Even more strangely, an investor can now get a better return from a CBA Term Deposit than they can from their dividend yield.
Since then, there’s evidence super monies have been allocated to other areas of our stock market. Such is the power of those funds, we’ve seen a steadying of the market even though CBA has gone back slightly and others have lifted. This is good news; concentration risk in our market is bad for competition and we’ve seen strong evidence of it in the US where the big returns in tech stocks (the Mag 7) have masked issues elsewhere in their market. On the topic of the US, the tariff talk stretched the bond market to the brink but, like their stock markets, things have settled down. So, for the start of the 25/26 financial year, volatility and market returns are within acceptable levels (for now). The next big challenge to watch out for is reporting season starting in August for big ASX companies which is likely to show the real impact from the tariff shenanigans: on the bottom line.
We might not be feeling so lucky or super then!
Will Chapman Dip FS(FP)
Authorised Representative (No 311745)
