Super savings hit by Greek crisis

Tuesday 30th June 2015

The Sydney Morning Herald – smh.com.au

Super savings hit by Greek crisis

John Collett

Personal finance editor

The Greek tragedy may not be a problem for the Australian economy, but it is costing super fund members plenty in foregone retirement savings.

Up until the end of last week, superannuation accounts were expected to finish the financial year that ends today more than 11 per cent higher.

However, because of the sharemarket falls this week induced by the Greek debt crises, the typical super fund balance is down 2.5 per cent over the month of June.

That takes the typical super account balance back to where it was in mid-February.

For someone with a super balance of $300,000 this equates to a loss of about $7500.

However, SuperRatings head of research, Kirby Rappell, says the estimated return for the financial year 8.5 per cent is still a good return.

That is well in excess of the return objectives of most super funds, which is to produce returns over the long-term of more than 3.5 percentage points above inflation.

Sharemarkets have tumbled across the globe in response to the Greek crisis. About $40 billion was wiped off the value of the Australian sharemarket on Monday, or more than 2 per cent, and the market is currently trading at levels it finished at yesterday.

The typical balanced super fund, where most people have their super, has about half of its money invested in shares.

Tourist traps

Putting aside the continuing hardships faced by the Greek people, there could be a silver lining for Australian travellers to Greece and for travellers to the eurozone generally.

The euro could fall against the Australian dollar if the crisis continues.

If there was to be an exit from the euro and return to the Drachma, the Australian dollar would be expected to have much more purchasing power in Greece than it does today.

But a Greek holiday may disappoint right now, and not just because of social unrest.

It could be difficult to get money out of ATMs where there are long queues with reports many ATMs have run out of cash.

Greek banks have shut their doors to stop the run on their deposits.

Greeks are allowed to withdraw only €60 a day from ATMs.

Tourists are not subject to controls, and credit cards used by travellers are reportedly unaffected.

Travel agencies are warning tourists to take extra cash with them.

There is an upside

The downturn on markets could prove to be short-term.

A "yes" vote at the Greek referendum to be held on Sunday to accept the creditors' conditions for continuing the bailout would kick the problem down the road. Sharemarkets could bounce as a result.

The Greek government is campaigning for a "no" vote, however, though according to most polls the result is more likely to be "yes".

Shane Oliver, chief economist at AMP Capital Investors, says an eventual Greek exit from the euro, if it were to occur, would be likely to lead to a "relief" rally on sharemarkets as investors bet that the long-running debacle with Greece and its debt is finally resolved.

Over the longer term, local shares are driven more by domestic conditions, with China the most important overseas influence.

While the negative effect on Australian share prices should prove temporary, domestic economic growth remains below trend, though far from dire.

Consumer and business confidence remains weak. Markets expect the Reserve Bank to cut the cash rate one more time before the end of this calendar year.

The Australian dollar is expected to eventually fall further. That would boost the competitiveness of Australian exports and offset some of the falls in commodity prices.

The danger for Australian investors is through any impact on China from the troubles in Greece and knock-on effects to the rest of the eurozone.

Europe is China's largest export market and, of course, China is Australia's largest export market.

If there was to be a return to the nadir of the financial crisis in Europe, Chinese export industries would be hurt and Chinese demand for raw materials reduced. China's economic growth is already slowing.

However, a Greek exit would be unlikely to derail the economic recovery in the eurozone, Dr Oliver says.

The eurozone is in much better shape to handle a Greek exit, he says.

Another risk, albeit a smaller one, is that with Greek banks skating close to insolvency, contagion spreads to those banks of other eurozone countries that have significant exposures to Greek banks.

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