Cashed up super funds hunt for buying opportunities

Superannuation funds Unisuper and Hostplus say they are sitting on elevated piles of cash and any major sell-off in equity markets sparked by the coronavirus will come as a buying opportunity.

"We're very concerned about the human tragedy and the impacts on things like jobs in hospitality and tourism, but we have strong cash flows which means as soon as markets drop by 10 per cent overnight, we'll be buying," said Sam Sicilia, the chief investment officer of $54 billion Hostplus.

Hostplus' funds under management tally is growing by about $1 billion a month thanks to new members and strong investment earnings.

"Are we prepared to sell our assets because of coronavirus? No, because quite frankly there is nowhere else to put our money."

Unisuper, an $85 billion fund, is also experiencing strong inflows, in part because Australians have flocked to industry funds in response to the banking royal commission.

"We're sitting on the sidelines waiting for buying opportunities," chief investment officer John Pearce said.

"You can look at resources, for example. While the Aussie sharemarket has experienced some record highs, what you're finding is quite a few discrepancies within the market.

"Banks have hardly been affected but the resources and energy sectors have been hit hard so there are probably going to be some decent buying opportunities there once we feel that the rate of infections has stalled."

Rebound from coronavirus

Mr Pearce said he was "astounded" at how little response coronavirus had elicited from global sharemarkets, signalling confidence that China had the situation under control.

"There were some jitters as soon as the epidemic was announced and a few hairy days in the market but jeez it's bounced back pretty quickly," he said.

Contrast that, Mr Pearce said, with a 10 per cent drop during the peak infection period of SARS and a 5 per cent fall in emerging markets related to Ebola.

Super funds had an exceptionally good year in calendar 2019, thanks mainly to buoyant domestic and global equity markets. The median growth fund returned 14.7 per cent. Unisuper topped league tables at 18.4 per cent.

Mr Pearce said the economic fallout from coronavirus in 2020 was likely to be bigger than what was being indicated by the market.

"China is in shutdown and it's going to clearly feed through to tourism, our universities and exporters yet the market is so sanguine about it all," he said.

"I guess it just shows how much liquidity is around at the moment and the fact that there is a lot of confidence that the Chinese have got this under control."

Unisuper holds a large stake in Sydney Airport, where 20 per cent of international travellers are from China. Shares in the airport have dropped about 6 per cent but, even so, member returns were unlikely to be affected much, Mr Pearce said.

Mr Sicilia said the answer to why investors hadn't reacted strongly to the virus was that they had no alternative but to buy equities.

"The only place they are getting a yield is dividends from the equity market," he said.

"They're not going to put it in cash or bonds. The same applies to war breaking out or climate change."