The Reserve Bank last week in its Quarterly Statement on Monetary Policy highlighted the fact that low interest rates are changing the risk profile of Australian households and savers – they are taking more risk.
It’s how monetary policy is supposed to work. Low interest rates stimulate spending and investment and, as a result, money flows through the economy, business is done and employment increases.
Investment Trends senior analyst Recep Peker said:
“Investor confidence and low interest rates have prompted planners to cut allocations to cash and direct more capital towards listed investments and other growth assets.”
But another part of the renewed risk tolerance the RBA won’t be too worried about is if Australians use the high Aussie dollar to buy offshore assets and in doing so, put some downward pressure on the Aussie dollar.
So Glenn Stevens is likely to be pleased with the story in the AFR this morning that an increasing amount of Australia’s savings pool is headed overseas.
The AFR cites data from Investment Trends resulting from a survey of 734 advisors across Australia which found that the percentage of planners who are going to increase their allocation to offshore – mostly equities and largely US – had increased from 3% last year to 18%.
But a lot of this demand is driven by the high dollar and increased purchasing power of the Aussie overseas, according to Peker, who told the AFR:
“While the current high dollar continues to offer good value to Australian investors looking overseas, any significant fall in exchange rates could be expected to impact demand.”
While the battle rages for Warrnambool Cheese with offshore money at the forefront of the charge, and while it seems the only answer to Graincorp is an offshore buyer, we have to wonder though, how some of this more risk-tolerant money can’t be turned internally.