THE BIG PICTURE: Money in the bank now moving to equities

While we don’t know for certain, there are good reasons to suggest that the solid gains recorded by the sharemarket in 2013 are in response to investors switching money from cash into equities.

The latest data we have on the holdings of financial assets covers September quarter 2012. Unfortunately the March quarter 2013 data won’t be available until June 27.

But it is useful to look at the current holdings of bank deposits and how the value of these holdings changed over the last five years – a time that included the Global Financial Crisis and European debt crisis.

Over the five years from September 2007 to 2012, bank deposits soared by an extraordinary $665 billion or 82%. In dollar terms, the bulk of that increase was made up by households, up $291 billion or 78%, with Australian companies the next biggest contributor, up $164 billion or 106% followed by pension funds, up by $98 billion or 90%.

In percentage terms the biggest growth in holdings of bank deposits was by public companies, up 516% ($11 billion).

While it’s widely known that households and pension funds have held higher than normal shares of assets in bank deposits over recent years, it’s not commonly known that Australian businesses have done the same. As at September last year, 35.8% of assets were held in bank deposits, well above the long-term average of 26.1%.

The week ahead

With Easter fast approaching, it is no longer appropriate to talk about “the year ahead”. Indeed some of the indicators to be released in the coming week cover the first two months of 2013 – so the year has well and truly begun.

Certainly, in Australia, the February data on home prices will be released on Friday. Figures on business spending, building and the broad trade performance are also issued.

In the US, a raft of data is released covering a broad range of topics such as housing, manufacturing and consumer confidence. In addition China releases the flash reading on manufacturing on Monday with official readings released on Friday.

In Australia, the week kicks off with the balance of payments on Tuesday. Not only does this cover trade in goods and services but also income flows. But it has much less relevance in the modern era.

On Wednesday, data on construction work completed in the December quarter is released. The residential building figures will plug into the economic growth estimates that will ultimately be issued on March 6. The commercial and engineering figures will also give some sense of the investment spending figures to be issued on Thursday and again in the economic growth estimates on Wednesday week.

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