Saturday, June 26, 2010

Feeling wealthier? You probably are

We're clawing back our wealth.

New figures show financial wealth per capita climbed to $46,000 in the March quarter, an impressive increase on low point of $36,200 reached just 12 months earlier.

The measure includes household wealth held in the form of cash, bank deposits, bonds and shares net of borrowing but excludes "non-financial" wealth in the form of real estate.

The latest recent high of $46,000 per person is still well below the all-high of $58,900 reached before the financial crisis.

Both household financial assets and household liabilities climbed to record highs of $39 billion and $25 billion in the March quarter.

Our debt to liquid assets ratio climbed to 154 per cent meaning that households don't have enough readily available assets to cover debts in an emergency.

"Households generally have plenty to cheer about," said Commonwealth Securities economist Savanth Sebastian who calculated the per capita figures from the Bureau of Statistics data released yesterday. "As the recovery gains traction the lift in wealth should support confidence... and in turn translate to an increase in spending and overall economic activity."

Both superannuation funds and Australian businesses remained cautious, with the funds holding 14 per cent of their assets in forms such as cash and bank deposits at the end of March - almost double the usual proportion of 8 per cent. The proportion of company assets held in cash climbed to the highest point in a decade.

"Super funds are spoilt for choice given the attractive yields being offered on term deposits," said Mr Sebastian. "But the longer that fund managers maintain an abnormally high proportion of money in defensive assets, the greater the risk their returns will underperform those of their competitors."

Foreign investors continued their love affair with Australia, buying an extra $6.3 billion of Australian shares in the past quarter. Just over 40 per cent of listed shares are now held abroad, close to a record high.

"The next round of data might show a reversal of this trend," said Mr Sebastian. "The Resource Super Profits Tax had a clear impact on the way global investors view Australia’s sovereign risk profile and as such until it is resolved, foreign investors are likely to remain cautious on Aussie equities. But in the longer run, the strength of domestic companies, and in particular the resilience of the Australian economy will no doubt remain a strong drawcard."

Published in today's SMH and Age

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