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Co-founder & CEO of AllenWargent property market & hedge fund advisory.
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Co-founder & CEO of AllenWargent property advisory, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds, & private investors.
4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.
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Thursday, 31 December 2015
Business lending has never been so cheap
Business credit growth recovery
To the best of my knowledge the Reserve Bank won't be releasing its usual end of month Financial Aggregates today since the good folk at Martin Place take a well earned Christmas break (and why not?).
That's a shame, as I'm sure all readers will agree that there are few more exciting times of the month than those breathless moments surrounding the release of a central bank's Excel tables.
As I looked at here last month credit growth increased to an 83 month high of 6.7 per cent (if you don't think that sounds like a particularly high rate of growth, see my post here on how much money and outstanding credit there is in Australia today).
Mostly this cycle has been driven by housing credit growth, but the dark blue line in the chart below shows that business credit growth has also slowly but surely increased to an 80 month high of 6.6 per cent, having previously slumped into negative territory through the financial crisis.
Business loans cheap
Alas today we won't get to find out whether business credit was still growing into the end of the year.
Generally speaking capital expenditure surveys have suggested that investment plans remain downbeat, even if the outlook has improved a little.
On the other hand scrolling the Reserve Bank's spreadsheets (which, incidentally, is a great way to spend New Year's Eve) tells me that the weighted average interest rate on outstanding bank loans to business hit a record low of just 4.55 per cent in the September quarter, down from the most recent peak in June 2008 of 8.45 per cent.
Now I know some people love a good anecdote about the economy slowing, and others have some odd models in their heads, but it should not be a great surprise that businesses have gradually begun to borrow and spend a bit more looking at this chart.
That said, the Deloitte CFO survey this year showed that around 90 per cent of corporations still have hurdle rates of more than 10 per cent, and half of those have hurdle rates of 13 per cent or above, so in some cases unrealistic expectations may be curtailing investment in potentially profitable projects.
Capital raisings update
At a time when most people are more interested in mince pies and Christmas stockings than stocks, the Aussie share market has notched up a ninth consecutive positive trade.
Statistics released by the Australian Securities Exchange (ASX) show that more than $5 billion of secondary capital has been raised over each of the past six months, for a total of nearly $35 billion.
Of course, secondary capital can be raised for any number of reasons: for investment, yes, but also to bolster capital buffers (e.g. banks), while some companies are forced to recapitalise (e.g. marginal resources producers). Anyway, here are the figures.
The rolling annual total capital raised has dipped slightly from $88.1 billion in September, which was the highest number since the great flood of recapitalisation through 2009-10.
The rolling annual total of initial capital raised has pulled back from $38.6 billion to $38 billion, largely because the $5.7 billion Medibank float of November 2015 has now dropped off the annualised figures.
Notably recent listings have included a high profile real estate float, with McGrath Limited (MEA) listing on December 7 and now being valued at $239 million, while the Real Estate Investar Group (REV) also had a listing date of December 10 and is valued today at $9 million.
Meanwhile stock market futures are* tentatively pointing to a tenth consecutive positive trade, suggesting that markets are cautiously optimistic about the year ahead.