Our share market could be poised to take a up to $60 billion hit from this week as superannuants are allowed to pull money out of their retirement savings under the government's COVID-19 rescue package.
I use the word rescue loosely as the early withdrawal of these funds could provide a material headwind to the emerging bull market.
Eligible superannuants will be able to start taking up to $10,000 out of their super funds this financial year from today. This is one big reason why the futures market is pointing to a small dip in the S&P/ASX 200 Index (Index:^AXJO) this morning.
Super selling of ASX shares
This is despite the big rally on Wall Street on Friday on hopes that parts of its economy will soon reopen.
There is a similar chatter here about this positive move, but why buy now when stock prices could be a lot lower soon?
The federal government estimates that Australians will take $27 billion out of their super under this tax-free arrangement, but some experts believe the amount could be more than double that.
Super funds will be forced to sell shares to fund the early withdrawal, and no one knows what proportion will be funded from equities.
ASX stocks that could be impacted
But my guess is that shares will make up a good proportion of the liquidation, even in a balanced portfolio (which is where majority of superannuants are parked).
This is because shares are relatively more liquid than most other assets held in a super portfolio. Super funds have been caught off guard by the federal government's move to allow some Australians to take cash out of their super to help them tide over the looming coronavirus recession.
It's the large caps that are most likely to feel the brunt of any sell-off. This includes the big banks like Commonwealth Bank of Australia (ASX: CBA), which has already paid its dividend.
Others that may be used as a source of funds are the big miners like BHP Group Ltd (ASX: BHP) and market darlings like blood products maker CSL Limited (ASX: CSL).
Strict eligibility
But most superannuants won't qualify for the early withdrawal scheme. The government put in a strict set of criteria. You have to be unemployed, or eligible for some Centrelink payments like JobSeeker or your working hours were cut by 20% or more since the start of this calendar year.
More details can be found on the ATO website here.
Those that meet the eligibility criteria are able to withdraw a further $10,000 from their super from 1 July 2020 to 24 September 2020.
Foolish takeaway
However, you shouldn't take money out of your super unless you absolutely need to. Just because you can, doesn't mean you should as there is a high price to pay. There are a few reasons for this.
First, you would be cashing out at a time when asset prices are still relatively low. The other reason relates to the issue of "compounding" where superannuants won't earn a return on the withdrawal over their working lives.
