Quarterly update - September 2008

QIC commentary

International shares

The September quarter saw an unprecedented number of large financial institutions requiring substantial government assistance, with several forced into bankruptcy. US mortgage giants Freddie Mac and Fannie Mae were seized by the US Government in an attempt to avoid a mortgage market collapse. Investment bank Lehman Brothers filed for bankruptcy, while the US Federal Reserve provided a US$85 billion credit line to ailing insurer American International Group (AIG) amid fears its collapse would create chaos in an already shaky market.

In this volatile environment, global sharemarkets ended the quarter lower. A ban on short selling, or selling stock an investor does not own, was introduced in a number of countries as a measure to stabilise markets.

Australian shares

The Australian sharemarket followed global trends, finishing the quarter down. As with many international economies, a ban on short selling was introduced in September by corporate watchdog the Australian Securities and Investments Commission (ASIC).

Resource stocks were the big losers after consistent good performance over the year. Market relief from a Reserve Bank of Australia (RBA) rate cut of 0.25% in September was short lived as investors focused on slowing global growth and the escalating credit crisis.

Fixed interest (bonds)

Global government bond markets found favour over the quarter, as weakening economic growth and credit crisis concerns came to the fore. Traditional safe haven assets were popular as investors sought stability. Corporate bonds came under pressure, affected by the global credit crisis.

Currencies

The weakening global economic outlook and the ongoing credit crisis dominated currency markets during the quarter. The US dollar recorded broad gains against other major currencies as concerns over economic growth spread to other economies. The Australian dollar registered its largest quarterly decline since it was floated as the Reserve Bank of Australia began to ease rates and the credit crisis worsened.

How does this affect my account?

Markets have been extremely volatile over the quarter, which has in turn affected member returns. Short-term returns on QSuper investment options exposed to the sharemarket have been negative. However, it is important to remember superannuation is a long term investment, and QSuper Investment option returns over three and five years remain strong.

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