Total household financial assets now stand at $83.345 billion as at June, 1999 according to Reserve Bank figures released recently. The measure of household financial assets includes household investment in the bank deposit sector and in managed funds. Analysis of the data produces several significant findings:
Managed Funds growth not outstanding
Despite private sector research companies trumpeting significant increases in funds inflow into retail managed funds, overall the managed funds sector (including wholesale and retail) grew by only 1.8 per cent for the quarter. This increase includes both market gain and fresh funds flow. The managed funds sector now stands at $41.034 bill, up from $40.269 bill in the March Quarter, an increase of $765m.
While this is a reasonable increase, it is less than that achieved in some previous quarters (Dec-96: 2.3%; Jun-97: 5.5%; Sep-97: 3.8%).
Allocation to offshore investments is the highest ever
The managed funds sector continues to invest ever increasing proportions into offshore investment markets. The June Quarter saw $13.616 bill invested offshore which amounts to 33.18 per cent of the managed funds sector. This is the highest allocation to offshore investment sectors ever recorded. It represents an increase of about 50 per cent over the proportions of offshore investment three years ago. In June 1996, New Zealand households had invested 22 per cent of the aggregate managed funds portfolio offshore. Now it is up to 33 per cent. The trend shows no signs of abating.
This indicates that New Zealand households are voting on the New Zealand economy "with their feet" as it were. They appear increasingly convinced that greater returns on investment equity can be achieved offshore than in the New Zealand economy. (By comparison, only $7 bill is invested in the New Zealand sharemarket via the managed funds sector).
Managed Funds making significant inroads
At a recent industry conference, the managed funds industry and financial advice profession were labelled "pathetic." However, the data point in a different direction. Managed funds in aggregate now represent $41.034 bill, while household bank deposits total $42.31 bill. This means that managed funds now represent just on 50 per cent of household financial wealth which is a stirling effort for an industry which labours under tax and legislative impediments.
Bank deposits are now a weak saving sector
Household saving in bank deposits declined for the June Quarter, down $284 m from the March Quarter. This represents a decline for the past three successive quarters. This high point in household investment in bank deposits was reached back in September 1998, when it recorded $42.68bn. There has never been three successive quarters of decline in household bank deposits in any other period since the Reserve Bank began to collect data.
The graph below highlights the extent of dissaving in bank deposits. It removes the interest earnings on bank deposits as well as the actual decline in the core savings stock.
Figure 1: Household Dissaving in Bank Deposits
Source: prf· consulting, based on data released by the Reserve Bank
The graph shows that just over $700m flowed out from the bank deposit sector when interest income on the savings stock is included.
Interestingly, this equates to about exactly the same amount of total increase in the managed funds sector over the quarter.
Household debt remains benign
There has been copious comment in the media recently about increases in household borrowing which may indicate a re-emergence of inflation. However, the data do not support this view. Previously prf consulting has argued that the increase in household mortgage borrowing has remained relatively subdued. The June Quarter data continues this trend.
Household mortgage borrowing rose 2.7 per cent for the quarter, which is slightly down on the rate of increase for the two previous quarters. This is a far cry from the four to five percent increases in household mortgage borrowing recorded in previous years. While there is clearly a recovery of activity in the housing sector, it does not yet appear that the momentum is sufficient to re-ignite inflation. This is particularly significant when one remembers that mortgage rates are the lowest they have been for many years.
P Richard Flinn is managing director of prfl consulting
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