In summary
- Wealthier: Net household financial wealth per capita rose from $73,352 to $75,955 in the March quarter. up 22.1 per cent over the past year and up 14.6 per cent over the past three years. Over the past decade per capita wealth is up 103.7 per cent.
- Cashed up: Pension fund (superannuation fund) assets rose by $70.5 billion to $1474.2 billion in the March quarter. Cash and deposits stood at a record 14.5 per cent of financial assets, well above the long-term average of 8.8 per cent.
- Households held 22 per cent of assets in cash or deposits in the March quarter, well above the decade average of 20 per cent. Companies held 44.6 per cent of assets in cash and deposits, just shy of 22-year highs.
- Foreign ownership: Foreigners held 44.6 per cent of Australian listed shares in the March quarter easing – easing further from the 20 year high of 46.8 per cent reached in the June quarter 2012. Foreign holdings of Australian government bonds stood at 70.1 per cent.
- Soft job market: The number of job vacancies fell by 7.3 per cent in the three months to May after sliding by 10.1 per cent in the three months to February.
What does it all mean?
- The latest data on household wealth certainly provides Aussie households with a bit of cheer and could not come at a better time, especially given the underlying level of conservatism. The global financial crisis caused the biggest ever drop in wealth for Australian households, however wealth levels have continued to repair over past couple of years and are now back at record highs.
- The sustained improvement in wealth levels and low interest rate environment has resulted in household tentatively starting to spend. Just over 22 per cent of total household assets are being held in cash and deposits – well above the decade average of 20.4 per cent, but have eased over the past few quarters. The improvement in household balance sheets certainly bodes well for future spending. And given that a low interest rate environment is likely to be part of the economic landscape over the coming year, it may prompt consumers to invest in other asset classes and spend a little bit more freely.
- It’s not only household wealth levels that have improved but also company balance sheets are certainly looking healthier. Corporate Australia held a record $403.5 billion in cash and deposits as at the end of March and the proportion of total financial assets, companies held in cash is just shy of the highest levels in 22-years.
- The strength in share markets has certainly been the key driver of the turnaround in wealth and more importantly the pickup wealth is expected to continue. CommSec expects an ongoing improvement in wealth over coming quarters. While the rate cuts will support corporate Australia, the key hurdle is the Federal election. Once the election is out of the way it is likely Aussie business will feel more confident to ramp up investment plans.
- 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. The risk for fund managers is being caught with too much money on the sidelines while equity markets track higher. As term deposit rates fall and the global economy strengths pension funds will need to allocate a larger proportion of inflows to growth assets.
- Over the past few years foreign investors have become more prominent investors in our companies. At the end of the March quarter, foreigners owned almost 45 per cent of Australian listed companies, holding just shy of the 20 year highs reached in the June quarter 2012. Not only do foreign investors hold almost half of our listed shares, they also hold over two-thirds of Australian government bonds. The recent volatility in the Australian dollar and the perception of a weaker currency over the coming year is likely result in a modest fall in foreign investment over coming quarters.
What do the figures show?
Financial Accounts:
- Households held a record $767 billion in cash and deposits at the end of March. Cash and deposit holdings represented 22 per cent of assets, above the decade average of 20 per cent.
- Australian non-financial private companies held $403.5 billion in cash and deposits at the end of March. Cash and deposits were 44.6 per cent of financial assets, just shy of the 22-year high of 45.6 per cent recorded in the December quarter 2011 but still well above the long-term average of 38.4 per cent.
- Pension fund (superannuation fund) assets rose by $70.5 billion to $1474.2 billion in the March quarter. Cash and deposits stood at a record 14.5 per cent of financial assets, well above the long-term average of 8.8 per cent.
- The net financial wealth of Australian households (assets less liabilities) rose by $88 billion or 5.2 per cent to $1,768.2 billion – a record high.
- Net financial wealth per capita rose from $73,352 to $75,955 in the March quarter. Per capita wealth is up 22.1 per cent over the past year and up 14.6 per cent over the past three years. Over the past decade per capita wealth is up 103.7 per cent.
- Foreign investors held $628 billion of Australian listed shares as at the end of the March quarter or 44.6 per cent of the total, easing further from the 20 year high of 46.8 per cent reached in the June quarter 2012. Foreign investors held 70.1 per cent of Australian government bonds in the March quarter, easing further from the record 78.9 per cent in the March quarter 2012.
Job vacancies:
- According to the Bureau of Statistics job vacancies fell by 7.3 per cent in the three months to May after sliding 10.1 per cent in the three months to February.
- In unadjusted terms in the May quarter, vacancies rose in the Northern Territory (up 18.5 per cent), Victoria (up by 5.6 per cent), and Queensland (up 4.6 per cent). Vacancies fell in South Australia (down 29.4 per cent); Tasmania (down 22.7 per cent); NSW (down 17.0 per cent); and Western Australia (down 12.9 per cent). Vacancies were flat in the ACT.
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 Bureau of Statistics’ Job Vacancies publication is released every three months and provides a perspective on the strength of the job market, especially hiring by businesses.
What are the implications for interest rates and investors?
- The financial accounts data is essentially backward looking and the Reserve Bank would be well aware that wealth levels may have eased marginally in the past few months given the volatility in share markets. Importantly the ongoing weakness in activity levels, conservative attitudes of consumers and businesses plus the downside risks to global growth will ensure the Reserve Bank maintains an easing bias
- Foreign investors are actively interested in the direction of our economy, outlook for our companies and in the movements of the Aussie dollar. Foreign investors can exert significant power over our financial markets.
- Demand for cash remains strong, but there are early signs that retail and wholesale investors are starting to think harder about the choice of assets, especially with term deposit rates falling.
- The Reserve Bank has continuously highlighted the strength of corporate and household balance sheets and the latest result will give the Reserve Bank further confidence that the longer term fundamentals for the economy look sound.
- Super funds and households are still holding much higher than normal levels in cash. CommSec expects that money to be put to work in equities, leading to further gains in share markets in coming quarters. CommSec expects the ASX200 to reach 5200 by end of 2013.
Prepared by James Craig, Comsec Research