Australiaâs love affair with cash
Australian companies are holding more cash than ever before. Financial accounts data released on Friday shows that non-financial private sector companies had $305 billion in cash and deposits at the end of June. Not only is this a record but also is the proportion of company assets held in cash.
At the end of June, companies held a record 32.8 per cent of financial assets in the form of cash.
Overall, Australians have $1.68 trillion in cash or financial sector deposits.
The financial wealth of Australians eased from three-year highs in the June quarter in response to the downturn in the global share market.
What does it all mean?
Australian companies are holding more money in liquid cash and deposits than ever before. Not only have companies squirreled away $305 billion in liquid assets, the proportion of total financial assets held in cash and deposits is also at a record high. Almost a third of financial assets at private sector companies are held in cash or deposits.
The extent of liquidity is even more marked apparent when you strip out equity holdings. Australian non-financial private sector companies have a record $137.7 billion more in non-equity assets than loans.
The high level of liquid assets is both positive and negative. Companies are well able to deal with the challenges posed by the volatile global financial conditions. But at what point does the level of cash become too much? It is easy to hold funds in liquid form of cash and deposits, but shareholders also want companies to be exploring opportunities to increase efficiency, productivity or growing organically or by acquisition.
Australian consumers and superannuation funds are also maintaining extraordinarily high holdings of cash and deposits. In fact, super funds are holding almost double the ‘normal’ cash holdings with the proportion of assets sitting just over 15 per cent.
Foreigners haven’t given up on Australian equities. In June foreign investors held just over 41 per cent of all Australia’s listed shares. The problem at present is that domestic investors aren’t keen on shares and aren’t actively trading. As a result, our share market is bouncing around in line with US and European markets, seemingly impervious to changes in domestic economic fundamentals.
No wonder Australian investors are losing patience with the share market; our bourse is seemingly hostage to global forces. In contrast, share markets in places such as Indonesia and New Zealand are marching to their own drums and are higher over 2011 rather than lower.
What do the figures show?
The value of cash and deposits in the economy rose by $26.7 billion (1.6 per cent) to a record $1681 billion at the end of June. Cash and deposits rose by 9.5 per cent over the year.
Households held $575 billion in cash and deposits at the end of June. Cash holdings represent 22.1 per cent of assets, above the long-term average of 19.5 per cent.
Australian non-financial private companies held a record $305.7 billion in cash and deposits at the end of June. Cash and deposits represented a record 32.8 per cent of financial assets, well above the long-term average of 26 per cent.
Non-equity assets held by Australian companies (non-financial) stood at $688.7 billion at the end of June, a record $137.7 billion higher than loans.
Pension fund (superannuation fund) assets fell by $20.4 billion (1.8 per cent) in the June quarter. Cash and deposits stood at 15.3 per cent of financial assets, well above the long-term average of 8.5 per cent.
The net financial wealth of Australian households (assets less liabilities) fell for the first time in a year, falling by 5.8 per cent in the June quarter.
Financial assets of households (such as shares, bank deposits) fell by $26.3 billion or one per cent in the June quarter to $2602.3 billion. Financial liabilities of households grew by $35.5 billion or 2.3 per cent to a record $1590.1 billion.
Net household wealth per capita fell from $47,633 to $44,698. Per capita wealth is up 1.9 per cent over the past five years and up 19 per cent over the past decade.
Foreigners acquired a net $14.6 billion in equities in the June quarter, an increase of $22.5 billion compared with the March quarter 2011 estimate.
Foreign investors held $548.4 billion of Australian listed shares as at the end of June quarter or 41.2 per cent of the total.
The value of listed equities fell by $83.7 billion (5.9 per cent) to $1331.6 billion at the end of June.
As at the June quarter, 18.5 per cent of assets were held in listed equities (19.7 per cent long-term average); 20.4 per cent held in bonds (17 per cent average); 23.3 per cent held in cash and deposits (20.5 per cent average). Smaller than normal shares of assets were held by unlisted equities (20.4 per cent, compared with 24.2 per cent average) as well as bills of exchange, accounts receivable and one-name paper.
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.
What are the implications for interest rates and investors?
Consumers and businesses are refusing to borrow and spend, preferring to keep their money in cash or in bank deposits. The Reserve Bank must monitor this super-conservatism very carefully as it is robbing momentum from the economy.
Australians are spoilt for choice. They can get good returns on term deposits, dividend yields on listed banks and rental returns on a number of key residential markets. But with little to separate returns, most prefer to leave their money in the bank.
Overall, Australia is well placed to deal with global shocks. Balance sheets are conservatively geared, and consumers and businesses are shunning debt.
Banks face difficulties in growing balance sheets in the current environment while competition for deposits should remain intense.
Retailers and other consumer-related companies face more challenges in light of falling share and property prices and financially conservative behaviour by consumers.
Published on: Tuesday, October 04, 2011blog comments powered by Disqus
Today on Switzer
Part one: for his invaluable insights into the Australian media landscape, don’t miss this interview with former News Corp CEO Kim Williams, who has just released his new book ‘Rules of Engagement’. (Broadcast Monday 1 September 2014.)
While market demand in a booming Sydney has eased slightly in winter, I am expecting a very strong spring season with more stock likely to ramp up activity over the next three months.
Have you ever wondered why Qantas' frequent flyer program is valued over $2 billion? I explain why today.
Part two: the second instalment of Peter Switzer's interview with former News Corp CEO Kim Williams. (Broadcast Monday 1 September 2014.)
The start of a new month ushers in a barrage of economic data, with a Reserve Bank Board meeting thrown in for good measure.
Christine Holgate, CEO of Blackmores, joins Switzer TV for a look at the recent earnings report and how the company is performing. (Broadcast Thursday 28 August 2014.)