Ukraine/Russia – Investment Update

What is happening in Ukraine right now?

Financial markets around the world are reacting to the fast moving and unpredictable nature of Russia’s invasion of Ukraine.

In response, world leaders have announced harsh economic penalties on Russia in an attempt to deter any further escalation. To date, these penalties have not led to a de-escalation of the situation, with additional penalties likely. The Australia government has announced, alongside governments around the world, that it does not support the invasion of Ukraine by Russian forces.

 

What investments have been impacted?

Australian and international shares have fallen in value, reflecting an increase in volatility due to the evolving situation in Ukraine. Members with super allocated to higher risk options, such as High Growth, Growth Plus, Growth and Australian and Overseas shares, will generally see larger swings in their returns as they have greater exposure to share price movements.

While it’s not known how long the current situation will last and to what extent the flow on effects will be for the rest of the global economy, assets linked to Russia have been impacted significantly to date.

The penalties have resulted in a material decline in the value of Russia’s currency relative to most other currencies around the world. While Russian bank shares have fallen considerably due to restrictions on their ability to participate in the global financial system.

Russia is a relatively small market globally, however it is a major producer of several commodities including natural gas and crude oil, and there have been material price increases in these products on the back of future supply concerns, which may remain in play for quite some time due to the conflict.

This is likely to impact Europe, which relies in part, on Russia’s natural gas, and also countries across the globe, as higher energy prices may see slower economic growth, possibly leading to higher inflation. This is especially relevant given inflation is already running high in a number of countries.

 

How is Cbus reacting to the situation?

The Cbus portfolio is well diversified, and designed to withstand market volatility. We have very little exposure to Russian assets directly (approximately 0.1% of the Fund) and are looking to exit these assets as soon as is practical.

In light of the rapidly evolving situation, Cbus has recently lowered its shares exposure (which are riskier assets) and changed the mix of shares we hold to provide greater protection for members. We are currently holding more cash, and Australian dollar exposure than is typically the case. In addition to these recent portfolio adjustments, the Fund has decreased its shares exposure over the last six to nine months to allow increased allocations to property, infrastructure and global credit.

The Cbus investment team is monitoring the situation closely, in particular its impact on the growth and inflation outlook. We are also proactively assessing any long-term investment opportunities that may arise from heightened uncertainty in the short-term.

 

It is important to remember that superannuation is a long-term investment

When looking at the investment option your super is invested in, it’s important to consider your investment time frame and the potential future impact of making a change based on short-term share market volatility.

Periods of negative returns are expected to occur from time to time and Cbus' investment options have been constructed to meet their investment objectives over the long-term. The resilience of this approach has been reinforced through many past market shocks, including the acute phase of the COVID-19 pandemic in 2020, with Cbus delivering a positive return for FY2020 while many other funds entered negative territory.

Whilst past performance is not a reliable indicator of future performance, history has shown that markets tend to recover over time. This recovery can sometimes happen quickly, so it is important to maintain a longer-term focus when considering your superannuation and not let short-term market movements influence long-term investment goals.

 

Additional resources

For further information on our investment approach including more about market volatility, see cbussuper.com.au/about-us/news/investment-news/explaining-share-market-volatility.