Wealth rebounds; Aussie companies cashed up

From

Financial accounts; Imports

  • Australian companies are maintaining very liquid balance sheets. Corporate Australia held a record $271.4 billion in cash and deposits as at September. As a proportion of total financial assets, companies held 30.7 per cent of financial assets in cash – the highest in 11 years
  • Super fund holdings of cash assets rose to a record high $162.9 billion in the September quarter. The proportion of super funds (pension funds) assets held in cash remained unchanged at 15.4 per cent in the June quarter, well above the decade average of 9.2 per cent.
  • The financial wealth of Australians rose sharply in the September quarter – largely due to 7.2 per cent rise in equity markets. Net financial assets of households rose by 8.0 per cent after sliding by 8.7 per cent in the June quarter.
  • Per capita financial wealth rose by over $3,000 to just under $44,000 in the last quarter. Financial wealth is down 17.8 per cent below the record set in late 2007.
  • In seasonally adjusted terms imports rose by 4 per cent in November supported by a 8 per cent lift in capital goods imports.

What does it all mean?

  • Australian households have plenty to cheer about with wealth levels repairing in the September quarter. Financial wealth is holding just shy of the two year highs reached in the March quarter and given the recent rally in equity markets it is likely to surpass those levels when the December quarter wealth figures are released. As the recovery gains traction the improvement in wealth levels should support confidence, and in turn translate to an increase in spending and overall economic activity.
  • Interestingly company balance sheets are certainly looking much healthier with Corporate Australia held a record $271.4 billion in cash and deposits as at September and the proportion of total financial assets, companies held in cash is now at the highest level in 11 years.
  • The unpopularity of high gearing levels has seen domestic companies pay down debt significantly, and the uncertainty surrounding the global recovery and lacklustre activity has seen business hold back from committing to investment plans.
  • It’s not only companies that are cashed up, Australian superannuation funds are holding almost double the ‘normal’ proportion of money in defensive assets like cash and bank deposits. That is not to say that super funds have not been investing in equity markets rather the equity investments have been less than the cash inflows record by fund managers. No doubt as the global economy strengths and the recovery look more concrete pension funds will feel more comfortable with allocating a larger proportion of inflows to growth assets.
  • Super funds are spoilt for choice at present, given the attractive yields being offered on term deposits, however the longer that fund managers maintains an abnormally high proportion of money in defensive assets, the greater the risk that returns will underperform its competitors. A combination of factors such as new fund inflows, asset allocation decisions, and valuation changes should underpin further growth of the sharemarket over 2011. We expect the All Ordinaries & ASX 200 indexes to lift to around 5,400 by December 2010.
  • Over the three months to September, foreign investors were certainly maintaining their love affair with Australia, purchasing an additional $23.8 billion of Aussie shares in the past quarter. Over 40 per cent of listed shares are held offshore, highlighting the importance of foreign investors in driving our sharemarket.

What do the figures show?

  • The net financial wealth of Australian households (assets less liabilities) rose sharply by 8.0 per cent in the September quarter after sliding by 8.7 per cent in the June quarter.
  • Financial assets of households (such as shares, bank deposits) rose by $88.3 billion or 3.7 per cent in the September quarter to $2,472 billion. Financial liabilities of households grew by $15.4 billion or 1.0 per cent to a record $1,491 billion.
  • Overall, net household financial wealth (assets less liabilities) rose by $72.8 billion to $980.8 billion at the end of September quarter. Financial wealth is up 1.7 per cent on a year ago but is still down 17.8 per cent from the record high set in the September quarter 2007.
  • Net household wealth per capita rose from $40,580 to $43,638. Per capita wealth is up only 4.7 per cent over the past five years and up 29.3 per cent over the past decade.
  • The household debt to liquid assets ratio fell by 4.8 percentage points to 159.6 per cent in the September quarter. The ratio shows that households do not have sufficient readily liquefiable assets to cover outstanding debt, highlighting a degree of vulnerability in the current economic environment.
  • The share of foreign (non-resident) holdings of Australian listed shares fell from 42.9 per cent in the June quarter to 41.2 per cent in the September quarter – easing further away from the 12 year highs of 43.3 per cent reached in March 2009. Overall foreigners bought a net $23.8 billion of Australian equities in the September quarter, compared with selling $41.3 billion in the June quarter.
  • Pension fund holdings of cash & deposits rose by $6.1 billion to $162.9 billion in the September quarter – a record high. The proportion of super funds (pension funds) assets held in cash largely remained unchanged at 15.4 per cent in the September quarter, remaining well above the decade average of 9.5 per cent.
  • Corporate Australia held a record $271.4 billion in cash and deposits as at the end of September. As a proportion of total financial assets, companies held 30.7 per cent of financial assets in cash – the highest in 11 years (since September quarter 1999.
  • Net financial assets held at private companies (non-equity assets less loans) stood at a record $77.4 billion at September. Australian companies are maintaining very liquid balance sheets.

Merchandise imports

  • Imports rose by 4 per cent in seasonally adjusted terms in November according to the Australian Bureau of Statistics. Consumption goods imports rose by 1 per cent, intermediate goods rose by 4 per cent while capital goods rose by 8 per cent.

What is the importance of the economic data?

  • The Australian Bureau of Statistics releases the Financial Accounts publication each quarter. The data covers assets, liabilities and financial flows for the key sectors of the economy. Figures on financial wealth help reveal the true state of household finances.
  • The ABS figures on imports refer to physical goods such as cars and computers. The figures are not adjusted for seasonal effects. The data is useful in highlighting the strength of consumer and business spending and gives some guidance as to the likely trade position in the month. But analysis can be clouded by currency changes.

What are the implications for interest rates and investors?

  • Equity markets are likely to remain well supported over coming months. The latest round of data has confirmed that super funds still remain heavily underweight equities. Super funds are holding almost double their traditional amount in cash and as fund managers become more confident about the economic recovery more money will be put to work in the share market.
  • In the longer run, the strength of domestic companies, and in particular the resilience of the Australian economy will no doubt be a strong drawcard for foreign investors
  • CommSec expects the All Ordinaries & ASX 200 indexes to lift to around 5,400 by December 2011.

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