MLC Market Watch

MLC Investment Strategist Brian Parker answers your questions on the economic outlook from our December webcast.

View this online discussion and stay tuned to Market Watch for this year’s calendar of events.

The Australian market has fallen 50% from its highs, but has to rebound 100% to reach the previous level. So does that mean it will take 7-9 years or one economic cycle for recovery?

No. There are no certainties about how long it takes to recover from previous share market losses. In fact, if we look at bear markets since the 1970s (i.e. where the market has fallen by 20% or more over at least a two-month period), the recovery period, or how long it has taken to get back to the previous peak, can be as fast as a few months or take several years. Obviously how long it takes to recover from losses depends on what kind of assets the investor is exposed to. A recovery period as long as 7-9 years is rare. It’s also important to remember that selling out of a market after falls such as those we have seen turns paper losses which can be made back, into actual losses, which cannot.

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MLC Investment Strategist Brian Parker answers the big picture economic questions we didn’t manage to get to in our December webcast. View the online discussion and watch this space for more Q&A.

Have you any idea when the bounce may come?

The short answer is that no-one knows. What we can say is that share market recoveries tend to happen before economic recoveries. In other words, waiting for better economic news as a sign of better times for the share market could mean you miss the bounce when it happens.

What will recover quicker the Australian share market or the international share market?

In this kind of environment, the local market is likely to take its lead from offshore movements. That’s not to say we cannot recover without a lead from offshore, it’s just that you would not want to bank on it.

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Andrew Lawless is Head of Technical Services at MLC. Here he answers the super and pension questions the panel didn’t manage to get to in MLC’s online panel discussion, held on Wednesday 12 November. Watch this space for more Q&A.

Is salary sacrifice a good idea in these times as I want to retire in a year?

Regardless of market conditions, salary sacrifice is a tax effective way to save for retirement. This is because your super contribution is taxed at a maximum rate of 15%, instead of your marginal income tax rate which could be up to 46.5%*.

There could also be advantages to investing in super when markets are down. This is because share values are cheaper, so you can buy more with your contribution and capitalise on this when the market recovers.

You should see a financial adviser to work out whether salary sacrifice is the best way for you to boost your retirement savings. If it is, they will also be able to advise on what investments you choose to generate sufficient income for your retirement.

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MLC Investment Strategist Brian Parker provides answers to questions the panel didn’t manage to get to during last week’s webcast.

Watch this space for more Q&A from our panellists.

What in the market crisis today is different from the crash of 87?

The fall in share prices then happened much faster, and the recovery began sooner, although the recovery hit a snag quite soon in the form of the early 1990s recession.

The rise in share prices that preceded the 1987 crash was also much less soundly based. Prices had risen pretty much on ‘thin air’ – corporate earnings hadn’t risen anywhere near as fast as company share prices. This time round, the rise in prices was much more closely related to gains in company profits. However, the problem now is that the level of company profits doesn’t look sustainable – profits always tend to fall in even a mild recession, and markets seem to be factoring in just such a fall.

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