Download Economic events in Greece and China

July 2015
Economic events in Greece and China
What’s the latest?
You’ve no doubt seen the headlines about Greece over recent weeks. And increasingly, the performance of the Chinese share market has
been a focus of attention.
This fact sheet outlines the key points on what’s happening in Greece and China what it means for Sunsuper members.
It’s important to remember that because we diversify our investment portfolios, our exposure to any individual country, even one the
size and importance of China, will always be limited. However, we are not immune to market volatility, even though our portfolios do have
key features that limit our exposure to market volatility; particularly our exposure to unlisted assets, including infrastructure, unlisted
property, and private equity.
What will happen in Greece?
Sunsuper’s direct exposure to Greek shares or bonds is minimal. And within our diversified investment options, our exposure to
government bond and share markets in other potentially vulnerable Eurozone countries such as Portugal, Italy and Spain is also small.
We don’t believe anyone has genuine insight into how things will play out in the Eurozone over the coming days or weeks, and events
could unfold very quickly. For a start, the outcome of the Greek referendum was a surprise for market participants. The implications of
the decisive “no” vote are still unclear — a vote against further austerity is not necessarily a vote against staying in the euro, but whether
the Greeks can stay in the euro is not entirely in their control. Negotiations of some sort are likely to continue, but an agreement looks
very difficult right now, especially since there seems to be a range of views among Greece’s Eurozone partners about how to proceed. It
means we are likely to see more volatility.
An exit from the euro will cause enormous difficulties for Greece in the short term. In the event of an exit (known popularly as “Grexit”),
volatility is only going to increase, and there is a real risk that bond and share markets outside of Greece will be impacted, some badly,
but others positively. This is where having a well-diversified portfolio is critically important. For example, “safe haven” assets such as US
Treasury bonds and German government bonds could do well, while other countries on the European periphery (Portugal, Spain and Italy)
could struggle – and we’ve seen some of that already.
However, there are sound reasons to believe that the crisis surrounding Greece can be contained. Firstly, Greece is very small. Its
economy, its share market, and even its bond market are a very small part of the Eurozone and the world. Secondly, the Eurozone
economy and banking system are now in much better shape today than they looked several years ago, and are better able to absorb any
shock coming from Greece. And finally, unlike previous episodes in the long running saga that is the Eurozone, we are more confident that
the European authorities – most importantly the European Central Bank – will respond aggressively if the crisis spreads to countries such
as Italy and Spain. They have programs in place that allow them to buy massive quantities of government bonds in any country that finds
itself in trouble. This allows those countries to keep funding themselves at reasonable rates of interest.
We continue to monitor the situation very closely, and are in regular contact with our managers to obtain their views and determine how
they are responding. Also be aware that volatility creates opportunity: active managers use times such as these to acquire quality assets
at attractive prices, and that is exactly what we would expect our managers to be doing.
Disclaimer and disclosure This fact sheet has been prepared and issued by Sunsuper Pty
Ltd, referred to as ‘Sunsuper’. While it has been prepared with all reasonable care, no
responsibility or liability is accepted for any errors, omissions or misstatements however
caused. All forecasts and estimates are based on assumptions. If those assumptions change,
our forecasts and estimates may also change. This fact sheet contains general information
only. Any advice does not take into account your personal objectives, financial situation or
needs. You should consider the appropriateness of any advice having regard to your
personal objectives, financial situation and needs before acting on that advice. A copy of the
Product Disclosure Statement (PDS) can be obtained by calling 13 11 84. You should consider
the PDS in deciding whether to acquire, or to continue to hold, the product.
Sunsuper Pty Ltd
ABN 88 010 720 840
AFSL No. 228975
13 11 84
GPO Box 2924 Brisbane QLD 4001
Sunsuper Superannuation Fund
ABN 98 503 137 921
USI 98 503 137 921 001
sunsuper.com.au
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What about China?
Over the last few months, you’d be forgiven for assuming that events in Greece were all that mattered for world markets. Events in
Greece are important, but there are other developments to our north that are much more significant for Australia and for Sunsuper
members.
The Australian economy has been a major beneficiary of China’s rapid economic growth in the past decade. However, China’s demand
for steel, and hence for iron ore, has weakened. As a result, the price of iron ore has fallen sharply over the past year, which is an issue
given iron ore accounts for around one-fifth of Australia’s total exports. The impact has also been felt in Australia’s share market – mining
shares produced negative returns over the past year, and were a significant drag on the overall performance of the Australian share
market.
China’s share market, after enjoying some spectacular gains over much of the past year, has fallen sharply since late April. These falls
have added to concerns over the outlook for the Chinese economy. However, the greatest share price gains and the biggest recent falls
have been in so-called China A-shares that are predominantly owned by Chinese domestic investors. Sunsuper’s portfolios have exposure
to Chinese shares, but only to Chinese companies that are listed in Hong Kong, or what are known as H-shares. These shares have not
declined anywhere near as far as shares listed on the mainland and Sunsuper’s exposure, as with our exposure to any individual country,
is limited.
What has been the impact on Sunsuper’s performance?
Despite events in Greece and China and the resultant volatility we’ve seen in world share markets in recent months, Sunsuper’s Balanced
option still achieved a return of 10.2 per cent over the financial year to 30 June 2015. We remain of the view that having an exposure to
Chinese shares as part of a well-diversified global portfolio will help deliver solid long-term returns for Sunsuper members.
If you want more information on economic events in Greece and China, or advice to decide which investment option or group of options is
best suited to your goals, our financial planners are here to help. Please give Sunsuper a call on 13 11 84.