Eyes on the horizon: Market volatility and your KiwiSaver account

BNZ’s Head of Wealth and Private Bank, Donna Nicolof, answers your questions.

The first two weeks of 2016 have served as a reminder that share markets can, from time to time, go through periods of weakness. Markets have fallen sharply and remain volatile, a result of investor anxiety as the outlook for the global economy has become somewhat more uncertain. While it may be unsettling to know that the value of your investments is falling, it’s important to remember that market volatility is a regular and normal part of investing.

This is the second significant period of volatility we’ve seen in six months and markets typically go through these cycles. All of the BNZ KiwiSaver Scheme funds are well diversified and are professionally managed by investment managers who have been selected following a thorough due diligence process. Part of being well diversified is that our investment managers have been appointed to complement each other. In other words, due to their different styles and approaches to investing, they each bring something different to your portfolio. Additionally, all of our funds hold a proportion of their investments in lower risk assets such as bonds and cash – which should reduce the impact of the recent equity markets falls on your portfolio.

Despite this volatility, you should maintain a long-term perspective. Making changes to your investment strategy now could mean that you ‘lock in’ any recent losses in your investments. If you’re still worried, take a moment to read the following Questions & Answers, which we hope will give you some insights as to what’s happening right now.

What has happened?

A panic-driven sell-off has spread through global financial markets. This has wiped significant amounts off the value of global share markets. The New Zealand share market, whilst down, has been relatively insulated from the bigger falls seen elsewhere. Cash and bond markets however are supported, as investors have turned to safe-haven investments.

What has prompted this?

The main driver is sentiment regarding the state of the world’s second-largest economy, China. While the Chinese government works to reform its economy (away from manufacturing and towards a more service-oriented one), investors have become increasingly concerned about its ability to make this adjustment. Furthermore, a weakening of China’s currency has spooked global investors, who are worried about the impact of a weaker yuan on its key trading partners. However, there’s no reason to suggest that China will come to a sudden stop. Rather we expect to see a ‘bumpy’ slowing of its economy.

The recent increase in US interest rates – the first time in nearly a decade – also has investors on edge. While this increase was widely anticipated, it marks the start of a move away from extremely low interest rates, which have helped to boost asset prices for several years.

At the same time, oil prices have fallen to their lowest levels in 12 years due to persistent excess supply, a result of the US and OPEC oil producers flooding the market with oil. This has negatively impacted on the share prices of global energy companies – many of which dominate the world’s major share market indices.

Should I be worried?

We believe that the current volatility in markets does not have the hallmarks of another global financial crisis (GFC), as some market commentators have suggested. The global banking system is in a much stronger position now than it was before the GFC, with many having built up large reserves to help them ride out periods of volatility like this.

What should I expect going forward?

These are interesting times and it’s likely there will be further volatility. But, as is usually the case, this should be temporary. There’s a chance things may get worse before they start getting better and so you should expect this to continue to impact on returns from the BNZ KiwiSaver Scheme funds.

What should you be doing right now?

The thing I’d like to stress most is that you should maintain a long-term perspective. Making changes to your investment strategy now could mean that you ‘lock in’ lower returns, which could negatively impact on your investment portfolio.

While it can be hard to sit tight and do nothing, you should remember that the recent falls come on the back of strong gains in share markets since 2009. If you’re in for the long term (and many of you will be), learn to accept that every now and then, markets will revert.

If you’re making regular contributions into your KiwiSaver account through your salary/wages, then at current market levels you’ll be investing at lower prices than in the immediate past. So currently, not only are you buying investments at lower prices, but as markets stabilise and recover, you should hopefully benefit from any recovery.

What should you do in the meantime?

Take a deep breath, don’t panic and keep your eyes on the horizon. Yes, there has been increased volatility and uncertainty in many markets globally, but it’s important to remember that markets typically go through these cycles.

As a long-term investor in a well-diversified portfolio you should take comfort from the fact that you are well positioned to ride out these periods of volatility. And of course, our investment managers will be looking to take advantage of any resulting investment opportunities, as they arise.

This article is solely for information purposes and is not personalised financial advice. We recommend that you seek advice specific to your circumstances from a financial adviser before making any financial decision. None of BNZ Investment Services Limited, Bank of New Zealand or any other person accept any liability for any loss or damage arising out of the use of, or reliance on, any information in this article.

sounds good but here is one for you…  when I joined bnz kiwisaver it was $1.130000 a unit… I had $62,000 put in…  it has gone up as far as $1.230000…  now its down to $1.177300, so if it drops to under $1.30000 what dose that mean for me?..  

Good question Rodgie.

BNZ - I look forward to your answer.  Being “good with money” as you claim I’m sure you can calculate the result for him.

An employee is automatically enrolled in kiwisaver. There is no legal requirement for anyone to advise them of the risk that they would be subject to before they are automatically enrolled. Hell you don’t even get to choose what percentage is even deducted from your wages.

Perhaps BNZ you could explain what a well-diversified portfolio is. And what do you mean by “investment strategy”. Certainly you cannot withdraw from kiwisaver completely and put the money into a better investment. By long term I’m assuming you mean that over time your money will increase or you should get a better return than other similar investments?

And just what countries are kiwisavers dollars in, what types of investments. The IRD’s website says shares and property and cash. Some investment companies that sell shares are manufacturers and retailers of psychoactive substances. I wouldn’t want my kiwisaver dollars buying those types of shares.

From what I have read US has a lot of debt owed to other countries in greater quantities than any other country.

The article above mentioned bonds - what sort of bonds - treasury bonds.

Donald trump who is running for president says that China is manipulating their currency. Last year they devalued their currency which caused a sell-off then.

What is an person to do?  How different is kiwisaver from any other managed investment fund?

We need to give people the opportunity to learn and make their own decisions. Sorry to sound negative but what goods an investment that you have no control over how much you put into it or whether you can leave it or not. Thats like feeding the people with fish that you caught rather than giving them the skills to teach them how to fish, so they can learn what the best fish is for them.

Kiwisaver is a one-size fits all approach to investing. Whether it turns out to be a good “investment strategy” well, its probaby early days.


Hi @Rodgie and @ford, thanks for your comments.

@Rodgie, you’re understandably concerned about the returns on your
investment, as are many who hold investments I’m sure. As I mentioned in my
blog, market volatility is a regular and normal part of investing. I’m not
sure about your personal situation but remember that, for most, KiwiSaver
is a long term investment. So investors who have time before they expect to
make a withdrawal should not change their investment strategy based on
short term volatility, as they do risk ‘locking-in’ any losses.

If you’re making regular contributions to your KiwiSaver account, looking
at the unit price alone isn’t the best indicator of your KiwiSaver account
value. The value of your KiwiSaver account depends on the number of units
you’ve accumulated AND the price of those units. If you’re still confused,
give our team a call on 0800 269 5494, or check the value of your BNZ
KiwiSaver Scheme account by logging in to your BNZ internet banking.

Another thing to note is that if the unit price falls below the price when
you first invested in the BNZ KiwiSaver Scheme (and assuming you’re a
regular contributor), this means that you’ll be buying new investments at
lower prices than when you first started. So, as markets stabilise and
recover, you should hopefully benefit from rising asset values and unit

And just thought I’d touch on @ford’s question about our investment
approach. The BNZ KiwiSaver Scheme funds hold these investments in
different combinations – and it’s the combination of these underlying
investments that largely determines how our funds will be affected during
times of market volatility.

For example, with the recent sell-off being driven largely by international
share markets, those funds with greater exposure to share investments will
have seen their unit prices fall by more than those funds which have a
greater exposure to cash and fixed interest investments. The good news is
that all of our funds have at least some exposure to cash and bonds (which
tend to be safe-haven investments), and this will have helped cushion the
falls for many investors.