Saturday, June 27, 2009

Where'd that wealthy feeling go?

"It's the result of the collapsing share market. Australians are more exposed to shares than the citizens of virtually any other country."

Australian households have lost an extraordinary 36 per cent of their financial wealth since the economic crisis began in the longest run of wealth destruction on record.

New estimates from the Australian Bureau of Statistics put combined household wealth at just short of $787 billion at the end of March, down from a peak of $1246 billion in September 2007.

The total includes household wealth held in the form of cash, bank deposits, bonds and shares; net of borrowing. Significantly it excludes wealth held in the form of superannuation and real estate both have which have also dived since the crisis began.

Financial wealth per household has slid from $159,000 to $98,000 - it's lowest point for more than three years. Per person it has slipped from $58,900 to $36,200...

"It's the result of the collapsing share market," said Commonwealth Securities economist Savanth Sebastian. "Australians are more exposed to shares than the citizens of virtually any other country. Up until March our share prices had dived 43 per cent."

In the early 1990s recession wealth collapsed sharply during the first quarter of 1991 and then bounced around rather than sliding relentlessly as it has done this time.

"Back then our wealth wasn't so tied up in shares," said Mr Sebastian. "We weren't as exposed."

The good news is that share prices are climbing again. Since March they have rebounded a further 10 per cent, leading CommSec to expect an end to the slide in financial wealth when the next figures come out in three months time.

"We're think household wealth will tread water for two quarters and then pick up towards at the end of the year," said Sebastian.

As our share market slid, more and more of our wealth has been switched into cash and bank deposits, with the total either held under beds, in safes or in banks and credit unions reaching a record $487 billion in March, roughly 60 per cent of household wealth.

However the amount that we owe has continued to climb throughout the crisis jumping a further $15 billion in the March quarter to a record $1,306 billion.

"Our ratio of debts to liquid assets has hit 154 per cent, meaning we don't have the readily available cash we would need to cover our debts if things in the event of a sharp downturn. We are vulnerable," said Mr Sebastian.

In contrast Australian companies have strengthend their balance sheets, paying down debts by a further $11 billion the March quarter.

"As a result their net assets have climbed to their highest point in two years. This should give investors confidence ."

The Australian Financial Accounts show foreign investors demonstrating that confidence, lifting their ownership of Australian shares to 42 per cent, the highest proportion in 12 years. In the first three months of this year they bought an extra $20 billion of net new shares.

Published in today's SMH and Age