Question:

Hi Mark,

Hope all is well. Firstly thanks for the weekly podcast on all things share investing. I listen to it regularly and find the content very helpful and educational. I’m also a recent member of the Morningstar US Dividend Investing Service and enjoying it so far!

I have a question regarding super contributions impact on share prices. If it’s a suitable topic for a podcast episode that would be great, or even if this has been covered previously in a Morningstar article would be great if can point me in the right direction.

I’m wondering how much compulsory super contributions are driving up valuations and share prices? With an ever increasing amount of money, via the 12% compulsory super contributions, flowing into shares via managed funds, ETFs etc., is this a material driver of increased valuations and will it be an increasing driver of valuations as time goes on?

Incomes rising, population increasing will all act as structural tailwinds for share prices as super contributions increase. Digging a little deeper, larger market cap companies that are in the ASX100 or ASX200 may see a higher proportional benefit from this as a lot of ETFs and Managed Funds tend to lean into the top 100 or 200 companies.

To put some numbers behind this, the RBA is forecasting the total Australian Super sector to increase from 3.9t to 8.1t by 2035, nearly double the forecasted GDP.

As an investor, are there any considerations we need to be considering with this, or is this just one of the many variables in the share investing game and not spend too much time and effort trying to figure out something too complicated and far out in the future?

Answer:

This is a follow-up question related to my last Mark to market. As a reminder the original question focused on valuation levels and how they are impacted by investors pouring more money into the market. This follow-up question focuses specifically on superannuation.

First some facts. APRA reports statistics on super from the previous 12 months on a quarterly basis. These statistics are reported on a lag and the most recent report I could find was from March 2025. In March 2025 total contributions to super in the previous year were $202.8 billion. This was offset by benefit payments of $127.5 billion. This leaves $67 billion in net flows.

The flows vary over time and net flows are up 13.40% since the year ended March of 2024. There are several factors that drove the increase. This includes the salaries earned by Australians contributing to super. Other factors include the increase in the superannuation guarantee (which was increased again in July 2025) but also the amount of benefit payments and voluntary concessional and non-concessional contributions. The stats only include super funds with more than six members which excludes many self-managed super funds.

According to the CEIC the market capitalisation of Australian listed shares is $2.9 trillion at the end of March 2025. If $67 billion flowed into the share market tomorrow – and no other money went into or out of the market – the market capitalisation would rise 2.31%. That approximates the impact over the course of a year but market fluctuations will impact the influence of super inflows.

This is obviously an unrealistic scenario for several reasons. Not all money going into super goes into Australian shares. It is divided into different assets classes including cash, fixed interest, global shares and alternative assets.

The asset allocation in super varies. But more Australians are invested in the AustralianSuper balanced option than anything else. Roughly 25% of the balanced option is allocated to Australian shares. Using that as an approximation for the overall super pool means an increase in the market capitalisation of 0.58% per year from inflows.

There is one more adjustment to make. The giant super funds can’t invest in many of the companies trading on the ASX. They are simply too small compared to the investment pools of the super funds. The top 20 companies in the ASX have a market capitalisation of approximately $1.6 trillion. If the 25% allocation of the $67 billion net inflow goes into the top 20 shares it would increase their market capitalisation by 1.01%.

Implications

The rough estimate I’ve made to account for the influence that super flows have on the local market is just that – a rough estimate. There are countless ways to challenge my assumptions.

My view is that the impact of super flows somewhat influences the market but are not the determining factor in market movements. It is not inevitable that the market will keep rising every year because of super inflows – and I do hear this from some people.

I think a more appropriate statement to make is that super money acts as a floor for the local market. As the market drops the inflows will have a bigger influence on market movements. More importantly the funds in super that are already invested in the local market forms a kind of floor.

My hypothesis is influenced by the stickiness of super money. Many Australians are apathetic about super. According to the Australian Retirement Trust nearly a quarter of all super investors haven’t logged into their account in the last 12 months. The same study showed that two-thirds didn’t know how to pick options in their super.

The lack of engagement isn’t great. But it does have some benefits. No matter what is happening in markets many of these apathetic investors won’t act. Their super asset allocation will remain the same. Their contributions will continue to flow into the market. Their apathy helps to form this floor.

There is a total of $4.3 trillion in super. If 25% of that is in Aussie shares that represents just over 60% of the local market capitalisation. That is significant. But – personally - this idea that super will save the market is not something I really consider when making investment decisions. All markets have sticky money that acts as a floor.

The local market can – and will at some point – fall significantly. One of the most dangerous things we can do as investors is to come up with justifications for why an investment can’t go down and why this time is different.

Have a question? Write me at [email protected]

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