As the Australian share market slides toward bear territory, a cautious, defensive approach is the most rational response. The Reserve Bank of Australia is raising interest rates to tame inflation, a necessary step even if it hurts equity valuations. Investors who back this strategy focus on preserving capital rather than chasing returns.
Defensive positioning makes sense. Superannuation funds are rotating into bonds and cash, while fund managers favour healthcare and utilities. These sectors tend to hold up better because demand for essential services is relatively stable. For example, CSL and Woolworths have historically proven resilient during downturns.
Advocates of this approach point out that bear markets are normal. Since 1900, Australia has experienced 15 bear markets, and every one eventually gave way to a new bull run. The key is avoiding forced selling. By keeping an emergency fund outside the market and maintaining a long-term horizon, investors can ride out the storm.
Moreover, higher cash rates mean term deposits and government bonds now offer respectable yields—around 4% to 5%. This income can offset some portfolio losses. The RBA’s focus on inflation credibility ultimately benefits the economy and the market in the medium term. Being patient and disciplined now is the best survival strategy.