29 Sep 2022

Market volatility part of any long-term investment cycle, say KiwiSaver providers

3:03 pm on 29 September 2022
Sharemarket, stockmarket generic

High inflation, rising interest rates and the war in Ukraine have driven volatility in the financial markets this year but KiwiSaver providers say investors should maintain a long-term outlook. Photo: 123RF

Local KiwiSaver providers are reminding investors to keep their heads amidst the latest round of financial market turmoil.

Capital markets have been under pressure for most of this year, as they been hit by a combination of high inflation, rising interest rates and the war in Ukraine.

But further fuel was added to the fire in the past week, following the announcement of the British government's mini-budget.

The plan to cut taxes but increase government borrowing surprised investors, who aggressively sold out of government bonds and the pound - plunging the latter to its lowest level against the US dollar on record.

The turmoil prompted the Bank of England to step in to try and douse the flames - announcing it would go against its anti-inflation policies and spend £65 billion (NZ$123b) on buying government debt to prop up bond prices.

The development brought some respite to global stock exchanges, which had been hammered in the past week.

Kernel Wealth chief executive Dean Anderson said KiwiSaver members should refrain from any sudden adjustments to their portfolios in light of the news coming out of the United Kingdom.

His advice to investors was simple - turn the news off.

"The reality is for investors who have a long-term mindset [they] shouldn't make any adjustments to how they're investing, how they're thinking about investing," Anderson said.

"The market noise that we're seeing right now is unusual, there is a lot of factors at play, but actually this is a standard part of the course of any long-term investor's life-cycle."

Anderson said the volatility would be harder to stomach for KiwiSaver members who were close to retiring or were planning to use their balances to help them into their first home.

Conservative funds were not providing much of a hiding spot for investors either, he said.

These lower risks funds tend to have greater exposure to bonds.

Anderson said conservative fund members could expect to see greater movements in their balances following the aggressive sell-down in UK government debt, which caused yields to spike and prices to fall.

But Pathfinder Asset Management chief investment officer Paul Brownsey said the consequences for local investors would be limited.

"I don't think there would be any KiwiSaver funds in New Zealand that have a massive exposure to UK bonds because it is a relatively small part of the global market."

The drop in UK bond prices was a serious issue for British pensions schemes, which had borrowed against these assets to invest in equity markets, he said.

Brownsey said investors should contact a financial advisor or their KiwiSaver provider if they had any concerns.

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