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- APOLOGY -
Last December, (The Crash of 2010) I speculated that the value of employees funds held by retirement funds management corporations would equal the GDP value of the Australian economy (which is approximately AU$500 billion) by 2010. Data from the Reserve Bank of Australia indicates that total superannuation investment since the introduction of compulsory retirement contributions was legislated in 1992 has gone from AU$195 billion to AU$480 billion as of December 2001. There is now an investment of about AU$30 billion per annum made by workers in compulsory superannuation.
A significant proportion of those funds purchase equities. The proportion of Australian shares held by superannuation funds had grown from around 20% of the total value of the sharemarket before 1992 to over 30% of the total value of the sharemarket by 1997, the latest date for which information was available.
Yahoo quotes today (8/2002) that the Australian Stock Market capitalization is about AU$700 billion.
Perhaps it is my engineering training, but where is that AU$30 billion/pa of retirement investment funds invested?
It should be noted that a greater amount of money invested in equities does not make those equities return a greater income stream. It just increases the demand (and hence the price) of those equities. A natural consequence is that P/E ratios would drop.
No doubt some of that investment money went to purchase shares which were issued for the purpose of expansion or takeover. Other money would have leaked into the bond market. Some no doubt went to IPO's. Existing commercial and manufacturing corporations would have found it easy to obtain investment money. (A lot of local Shopping "Malls" have had a facelift recently, so perhaps some of that money went to retail?)
For an inefficient corporation, (or bank) the best investment strategy might be to buy (for an inflated price) their more efficient competitors. In one step this would make their business more efficient, and also serves to reduce competition.
For an efficient corporation, it would be necessary to expand rapidly enough to not be the takeover target of less efficient competitors. The best investment strategy might thus be to diversify into new markets, and hope that existing expertise could be applied in the new markets. Efficient corporations would probably not want to purchase their less efficient competitors because they would know that would be a bad investment, & they would also know that as time passed their competitors would lose market share to themselves.
In retrospect it appears that the recent stresses in the
equity markets might have resulted from our government's attempt in 1992
to improve it's income stream by enaction of legislation forming new investment
corporations.