Understanding market volatility

The US and Iran war has disrupted global trade and travel and created a supply and demand crisis in oil, spiking petrol prices. The impacts are being felt across the whole global economy, and are greater and broader than just spiking oil prices.

Money flows through systems shaped by politics, policy and power. At Future Super, we believe where money flows matters – which is why your retirement savings aren’t invested in the fossil fuel companies that are wrecking the planet. We spend a lot of time talking about how our money impacts the world, but it’s also important to understand how global events impact investment markets and your super balance.

Your super is a long-term investment, designed to see you through your whole working life and into retirement. It’s important to always keep that long term perspective in mind when we’re talking about market movements.  

What's happening 

The US and Israel have initiated a military campaign striking many targets across Iran with the aim of neutralising Iran’s military, and causing severe disruption to the political leadership of Iran. 

In turn, Iran has attacked multiple countries it views as sympathetic to the US. Alongside the risk to persons living in the region, these actions have severely disrupted freight flowing through the Strait of Hormuz. The Strait carries approximately 20% of the world’s energy supply and other critical exports from the region. Most of these exports were destined for countries in the Asia-Pacific region.  

So far, the most visible impact for Australians has been the steep rise in the price of petrol and diesel. Higher fuel prices affect production and transport costs, driving inflation across almost all sectors. There is a risk that the Strait remains closed for a long enough time that supply chains shut down, in a similar manner as we experienced during Covid in 2020. 

The effect on investment markets has been broad. Firstly, share markets have moved down significantly, reflecting the expectation that shipping disruption has a significant impact on the world economy. 

• Read more: What the energy crisis is really showing us

Secondly, bond yields have been moving as investors seek to predict the next move on interest rates from central banks. As this crisis is likely to have an inflationary impact, it's more likely that interest rates will increase. Lastly, all investment markets have been very volatile as investors try to understand the implications of the war, the likely disruption to the world economy, and the flip-flopping of the US government on its objectives for Iran and how it thinks the war is going.

The US-Israel-Iran conflict is not the only major theme playing out currently.  

Markets continue to adjust to Trump's trade tariffs, which led to the shuffling of trading partners seeking improved deals. This has impacted the flow of investment capital across the world, generally favouring emerging markets and Europe. Investment strategies that have a strong weight to the US have missed some of these opportunities.

Just as important is the way artificial intelligence is changing things. After a strong increase in share prices for AI companies seeking to build out vast data centres, that support has waned a bit. 

The AI boom entering a new phase has reduced the value of many Software as a Service (SaaS) companies who are realising that minor competitors can use AI to develop sophisticated software without hiring large developer workforces.

How investors handle market movement 

Portfolio Manager Sam Parkinson is part of the team that keeps a very close eye on market trends and changes that could impact the investments inside Future Super. He points out that markets rise and fall all the time.

“Even big, unexpected events, whether they're driven by macroeconomic shifts or geopolitical tilts – they’re not new,” he says.

“Sometimes referred to as Black Swan events or left-tail risk, they don’t happen often but when they do they can be really unsettling for members.”

These events are rare, but severe and difficult to predict. They make headlines. They can unsettle markets, too. And they can be confronting. But new? Nope.

In just the past two decades, investment markets have navigated several upheavals:

• The Global Financial Crisis

• The COVID-19 pandemic

•  Russia’s invasion of Ukraine

• The UK’s Brexit vote

• Trade wars and commodity shocks

In each case, markets experienced sharp volatility. In each case, long-term diversified investors were able to recover over time.

That doesn’t mean downturns are comfortable. They’re not. But it does mean that building a portfolio around a single geopolitical outcome – or assuming one country’s trajectory determines everything – is not how long-term investing works.

How this affects your super 

The investment management team behind Future Super constantly monitors potential geopolitical risks and tailors investment plans to minimise shock. Even so, no investment is immune to market ups and downs.  

Superannuation is a long-term investment designed to support you in retirement. That long horizon is important.

Short-term shocks can:

• Increase share market volatility

• Move currency values

• Shift bond prices

• Create temporary drawdowns

Because markets are globally connected, volatility can ripple through the US, Asia, Europe and Australia. Super funds, however, are not built around one country, policy or administration.

How Future Super manages uncertainty 

Our investment approach isn’t built around one country, one political outcome or one short-term headline. Instead, our investment managers focus on:

Diversification

Your super is invested across different asset classes, industries and regions. This helps reduce reliance on any single market.

Active oversight

We continually monitor economic conditions, market trends and global developments. When conditions shift, we review exposures and adjust where appropriate.

A long-term investment horizon

Super is a long-term investment, and our strategy reflects that. However, we are always providing active management and will adjust our investments to ensure our members best financial interests are always served.

Because markets are globally connected, some ups and downs are inevitable. What matters most is how portfolios are structured to absorb and manage those shocks over time. 

Maintaining long-term vision

 “It's important to understand that with these sort of extreme events, markets have always recovered over the long term,” Sam says.

Short-term volatility does not automatically translate into long-term loss, especially when portfolios are diversified, actively managed and built with sustainability in mind.

Our job as a super fund is not to predict the next political shock, but to build resilient portfolios that can withstand them. Your money is invested to support your retirement – and to help build a future worth retiring into. Our decisions are guided by discipline, diversification and a belief that our future is the best investment.

That doesn’t change the fact that seeing negative market movements reflected in your super balance can feel unsettling and unpleasant. We’re here to help however we can. Please reach out to us if you have specific questions or concerns– our coaching team is here to help you review your investment options and make the most of your super.

• Read more about how super behaves during market downturns