Wealth Management Market Update

Market Round-Up 
We saw the latest Consumer Price Index (CPI) figures record a headline rate of 6.0% per annum for the June quarter. This was down from March quarter recording a rate of 7.0% per annum, suggesting that the economic landscape is moving back into line with where the Reserve Bank of Australia (RBA) is comfortable, at least on the inflation front. It is worth noting that although there has been a drop in the annual inflation figure, the headline rate is still sitting at roughly double the target rate of the RBA (3.0% p.a.). 

Markets both domestically and globally have trended slightly up for the month, which appear to fall into line with the “yo-yo” trend that we have seen over previous months.

While both the Australian and US stock markets have demonstrated positive performance, there have been some variations in the factors driving their growth. Australia's reliance on sectors like mining and commodities has influenced its market gains, whereas the US market's strength has been propelled by technology and innovation sectors.

It's essential to note that both markets are still subject to global economic dynamics, geopolitical events and central bank policies, which continue to impact investor sentiment and market movements.

Diversification and risk management strategies remain critical in navigating the evolving financial landscape.

Unlisted Assets in Industry/ Retail Super
With $650b in unlisted assets across the Industry and Retail superannuation landscape, the growing crackdown on valuation requirements being pushed by the Financial Regulator Assessment Authority in its review of APRA is causing ripples in the sector, with some funds being forced to write down 15% of the value of their unlisted office property alone. This comes as a rude awakening for super funds, who have recently flocked to the sanctuary of unlisted assets to escape the heat of rising interest rates and falling asset prices to bolster their performance figures.
 
The current industry standard of annual or six-monthly valuations offers an attractive buffer to listed market movements, especially during volatile periods as was observed during FY22. That saw almost all listed asset classes fall, whilst unlisted counterparts remained remarkably stable. This insulated funds from the turmoil of the broader listed market, which buoyed their performance and unsurprisingly, encouraged further inflows from investors chasing those inflated returns during a time of plummeting valuations. This results in a disconnect to the true value of the underlying assets, which benefits those leaving the fund as they sell out at the high, but harshly punishes new members who are left holding overvalued assets. This quest for fair valuations is the main concern for the FRAA, as they criticise APRAs existing valuation requirements, and the standard at which they’re held.
 
Unlisted assets make a vital contribution to return profiles and risk management by expanding investment opportunities away from traditional exchanges, while also sidestepping the volatility experienced during the ebbs and flows of the equity and bond markets. However, high allocations among super funds (with Host Plus famously holding nearly half of their flagship fund in unlisted assets like property, infrastructure, and private equity), can result in substantial mispricing, which eventually flows down to the member. The FRAA and APRAs notice to funds is one of improved transparency and honesty in their appraisals to avoid misleading members, especially considering the long-term implications on their retirement nest eggs.

If you require any further information or would like to discuss, please do not hesitate to contact us.