FINANCIAL MARKETS
Financial markets are used by participants to either raise funds (e.g. by issuing securities) or invest savings (by buying securities and other financial assets). The major markets in the Australian financial system include the share market, bond market and money market. Descriptions and tables indicating prices and activity in various financial markets are provided in this section.
A significant influence in financial markets is the participation of institutional investors controlling large pools of investment funds. These pools are accumulated by collective investment institutions and are often managed on a fee-for-service basis by investment managers. A summary of the activities of these institutions is also provided.
Credit market
Credit may be defined broadly as funds provided to those seeking to borrow. However, analytically useful measures of credit usually exclude borrowings by financial enterprises because their main role is as an intermediary, that is, they borrow in order to lend. Also, lending and borrowing between enterprises which have a special relationship, such as between companies in the same group or between government agencies, are often excluded from credit measures because transactions between these bodies frequently are of a non-market nature. Similarly, some types of financial instrument, such as trade debts, are not considered to be part of an organised market. All of these types of transactions are omitted from table 27.12, which presents a summary of the demand for credit in Australia by the non-financial sectors. It includes raisings by the issue of both debt and equity securities. Table 27.13 shows details of household demand for credit.
27.12 DEMAND FOR CREDIT(a) |
| |
| | Net transactions during year | |
| | 2004-05 | 2005-06 | 2006-07 | |
| | $m | $m | $m | |
| |
Funds (including equity) raised on conventional credit markets by: | | | | |
| Private non-financial corporations(b) | -15 064 | 125 901 | 156 554 | |
| National public non-financial corporations | 602 | 658 | 16 489 | |
| State and local public non-financial corporations | 5 261 | 3 868 | 4 396 | |
| National general government | -2 395 | 1 341 | -1 821 | |
| State and local general government | -447 | -1 821 | 353 | |
| Households | 103 818 | 113 168 | 126 188 | |
| Total | 91 775 | 243 115 | 302 159 | |
| |
(a) Positive numbers indicate an increase in raisings; negative numbers indicate repayment or redemption. |
(b) Aggregates impacted by large corporate restructuring transactions. |
Source: Australian National Accounts: Financial Accounts (5232.0). |
Table 27.13 shows the components of household borrowings.
27.13 HOUSEHOLD DEMAND FOR CREDIT |
| |
| | | | Net transactions during year | |
| | | | 2004-05 | 2005-06 | 2006-07 | |
| | | | $m | $m | $m | |
| |
Households demand for credit | 103 818 | 113 168 | 126 188 | |
| Housing | 83 830 | 92 163 | 91 165 | |
| | Total Authorised Deposit-taking Institutions (ADIs) | 55 136 | 59 225 | 54 912 | |
| | | Owner-occupied housing | 37 722 | 42 386 | 38 152 | |
| | | Investment housing | 17 414 | 16 839 | 16 760 | |
| | Other lenders | 28 694 | 32 938 | 36 253 | |
| Non-housing borrowing | 19 988 | 21 005 | 35 023 | |
| |
Source: Australian National Accounts: Financial Accounts (5232.0); Housing Finance (5609.0). |
Stock market
The stock market is a mechanism for trading equities (shares), units in trusts, options, and some fixed-interest securities.
Operated nationally by the ASX, which is responsible for the day-to-day running and surveillance of trading, the Australian system is electronic and conducted using the Stock Exchange Automated Trading System, allowing buyers and sellers to be located anywhere in the country.
The ASX classifies listed companies according to their major activity and produces indexes based on these classifications. Table 27.14 summarises the performance of the major indexes.
27.14 AUSTRALIAN STOCK MARKET INDEXES(a) |
| |
| | 2004-05 | 2005-06 | 2006-07 | |
| |
All ordinaries | | | | |
| Index(b) | 4 229.9 | 5 034.0 | 6 310.6 | |
| High(c) | 4 275.6 | 5 352.1 | 6 421.0 | |
| Low(c) | 3 479.3 | 4 179.8 | 4 881.3 | |
S&P/ASX 200 | 4 277.5 | 5 073.9 | 6 274.9 | |
| Banks | 10 865.0 | 12 722.2 | 14 771.1 | |
| Industrials | 6 824.7 | 7 618.2 | 9 424.4 | |
| Resources | 2 861.1 | 4 282.8 | 5 295.3 | |
| |
(a) Base 31 December 1979 = 500. |
(b) Share prices on joint trading floors; June closing value. |
(c) Over a 12-month period ending 30 June. |
Source: Australian Stock Exchange; Reserve Bank of Australia; Standard and Poor's. |
Table 27.15 shows the market value of Australian shares and units in trusts on issue - both listed and unlisted. It shows the amount on issue by sector of issuer and sector of holder of equities and units.
27.15 EQUITY MARKET(a) - 30 June |
| |
| 2005 | 2006 | 2007 | |
| Listed | Unlisted | Listed | Unlisted | Listed | Unlisted | |
| $m | $m | $m | $m | $m | $m | |
AMOUNTS ON ISSUE | |
| |
Total equities and units in trusts | 982 645 | 828 969 | 1 216 029 | 993 859 | 1 605 688 | 1 123 081 | |
ISSUED BY | |
| |
Private non-financial corporations | 588 202 | 192 807 | 772 235 | 226 405 | 1 078 723 | 254 610 | |
National public non-financial corporations(b) | 62 963 | 5 629 | 45 792 | 5 781 | - | 6 918 | |
State and local non-financial corporations(b) | - | 89 270 | - | 84 620 | - | 80 329 | |
Central bank(b) | - | 11 241 | - | 12 685 | - | 9 703 | |
Banks | 216 970 | 6 496 | 254 508 | 6 901 | 308 631 | 7 338 | |
Other depository corporations | 415 | 32 784 | 634 | 35 037 | 1 108 | 37 583 | |
Life insurance corporations | 19 698 | 4 242 | 28 041 | 4 539 | 32 565 | 4 945 | |
Other insurance corporations | 28 279 | 31 503 | 32 290 | 28 262 | 37 785 | 38 941 | |
Central borrowing authorities | - | 30 | - | 30 | - | 30 | |
Financial intermediaries | 66 118 | 105 265 | 82 529 | 134 545 | 146 876 | 149 279 | |
Rest of world | - | 349 702 | - | 455 054 | - | 533 405 | |
HELD BY | |
| |
Private non-financial corporations | 18 932 | 146 937 | 28 112 | 196 451 | np | 221 338 | |
National public non-financial corporations | - | 4 021 | - | 3 736 | - | 316 | |
State and local public non-financial corporations | - | 280 | - | 291 | - | 378 | |
Banks | 2 029 | 99 858 | 1 572 | 115 177 | 1 272 | 135 790 | |
Other depository corporations | 67 | 4 443 | 50 | 4 033 | 85 | 3 533 | |
Life insurance corporations | 64 960 | 61 624 | 72 745 | 65 757 | 85 242 | 74 952 | |
Pension funds | 197 980 | 163 546 | 253 678 | 209 194 | 342 682 | 257 431 | |
Other insurance corporations | 7 743 | 28 674 | 10 558 | 32 246 | 13 411 | 34 686 | |
Financial intermediaries | 77 633 | 54 157 | 126 042 | 76 677 | np | np | |
National general government | 32 618 | 17 512 | 23 723 | 19 221 | np | np | |
State and local general government | - | 93 195 | - | 89 868 | - | 87 588 | |
Households | 236 375 | 73 943 | 295 294 | 78 618 | 372 198 | 80 206 | |
Rest of world | 344 307 | 80 779 | 404 255 | 102 590 | 511 834 | 119 933 | |
| |
- nil or rounded to zero (including null cells) |
np not available for publication but included in totals where applicable, unless otherwise indicated |
(a) Includes units in trusts. |
(b) Net asset values. |
Source: Australian National Accounts: Financial Accounts (5232.0). |
Money market
Liquidity management by Australian corporations, financial institutions and governments is conducted through an informally arranged market for deposits, loans and placements, and by issuance, purchase and sale of short-term debt securities. Selected rates in the market at 30 June are shown in table 27.16.
27.16 SHORT-TERM MONEY MARKET RATES(a) - 30 June |
| |
| 2005 | 2006 | 2007 | |
| % | % | % | |
| |
11:00 am call | 5.50 | 5.75 | 6.25 | |
Bank-accepted bills - 90 days | 5.66 | 5.96 | 6.42 | |
| |
(a) Per annum. |
Source: Reserve Bank of Australia. |
Money market securities have an original term to maturity of less than one year, often 30, 90 or 180 days. They are issued by borrowers at a discount to face value and carry no income payment other than the repayment of face value at maturity. To enhance liquidity, money market securities conform to standardised attributes concerning risk and discount rates. Because of the standardisation, the securities of different issuers are often combined in the one parcel of securities for trading purposes. There are two types of securities: bills of exchange and one name paper (promissory notes, treasury notes, commercial paper and bank certificates of deposit), both of which are covered by the
Bills of Exchange Act 1909 (Cwlth). The risk of default of a bill of exchange is reduced by an acceptor or endorser adding their name to the security for a fee. Most bills of exchange traded in the market are bank-accepted bills. Promissory notes are issued by institutions whose credit worthiness is equal to or better than banks; they are not accepted by a bank and unlike bills of exchange they are not endorsed by the parties which sell them in the market. The Australian Government issues treasury notes, state governments and large corporations issue commercial paper and banks issue negotiable certificates of deposit. Table 27.17 shows the amount on issue by sector of issuer and sector of holder of the various types of money market securities.
27.17 SHORT-TERM DEBT SECURITIES |
| |
| Amounts outstanding at 30 June | |
| 2005 | 2006 | 2007 | |
| $m | $m | $m | |
ISSUED BY | |
| |
Private non-financial corporations | 81 472 | 93 548 | 104 873 | |
National public non-financial corporations | 509 | 1 546 | 18 | |
State and local public non-financial corporations | 16 | 33 | 38 | |
Banks | 155 147 | 197 212 | 230 252 | |
Other depository corporations | 30 288 | 29 678 | 26 212 | |
Life insurance corporations | 3 | 6 | 9 | |
Other insurance corporations | 416 | 452 | 438 | |
Central borrowing authorities | 5 995 | 5 374 | 6 194 | |
Financial intermediaries n.e.c. | 24 332 | 27 914 | 37 889 | |
National general government | 270 | 252 | 252 | |
State and local general governemnt | 642 | 762 | 855 | |
Households | 15 223 | 17 618 | 22 088 | |
Rest of world | 2 236 | 3 598 | 4 319 | |
Total | 316 549 | 377 993 | 433 437 | |
HELD BY | |
| |
Private non-financial corporations | 27 900 | 25 494 | 27 369 | |
National public non-financial corporations | 215 | 240 | 349 | |
State and local public non-financial corporations | 1 | - | - | |
Central bank | 4 718 | 13 902 | 14 473 | |
Banks | 60 905 | 74 319 | 89 284 | |
Other depository corporations | 37 648 | 30 824 | 43 621 | |
Life insurance corporations | 18 133 | 17 132 | 18 222 | |
Pension funds | 27 244 | 28 486 | 35 533 | |
Other insurance corporations | 9 661 | 10 281 | 11 281 | |
Central borrowing authorities | 20 843 | 16 239 | 22 594 | |
Financial intermediaries n.e.c. | 22 908 | 22 556 | 25 090 | |
Households | 7 417 | 7 122 | 7 138 | |
Rest of world | 78 956 | 131 398 | 138 483 | |
Total | 316 549 | 377 993 | 433 437 | |
| |
- nil or rounded to zero (including null cells) |
Source: Australian National Accounts: Financial Accounts (5232.0). |
Bond market
Bonds are issued with original terms to maturity of one or more years. Usually the investors are paid a set periodic interest, called a coupon, for the life of the bond and receive their initial investment back at maturity. Some bonds have variable interest rates, some have principal repayments indexed, and there are small amounts of zero-coupon or deep discount securities which are issued at a discount to face value. Governments, trading enterprises and financial institutions issue bonds to finance long-term requirements. For these entities, the bond market generally provides a cheaper source of funds than borrowing from banks and other financial institutions. Table 27.18 shows selected market yields at the end of June for a range of bonds.
27.18 BOND MARKET, Market yields(a) - 30 June |
| |
| | 2005 | 2006 | 2007 | |
| | % | % | % | |
| |
Treasury bonds | | | | |
| 3 years | 5.10 | 5.78 | 6.45 | |
| 5 years | 5.10 | 5.78 | 6.40 | |
| 10 years | 5.11 | 5.79 | 6.26 | |
New South Wales T-corp bonds | | | | |
| 3 years | 5.33 | 6.01 | 6.72 | |
| 5 years | 5.36 | 6.02 | 6.76 | |
| 10 years | 5.39 | 6.08 | 6.66 | |
Finance company debentures | | | | |
| 3 years | 5.40 | 5.90 | 6.40 | |
| |
(a) Per annum. |
Source: Reserve Bank of Australia. |
Historically, the main issuers of bonds have been the Australian Government and state governments, the latter through their central borrowing authorities. Corporate bonds are issued only by very large private trading and financial enterprises. In recent years banks and asset-backed security trusts have issued increasing amounts as government issuance has decreased. Details of the amounts outstanding on bonds issued and held are shown in table 27.19.
27.19 BONDS |
| |
| | Amounts outstanding at 30 June | |
| | 2005 | 2006 | 2007 | |
| | $m | $m | $m | |
ISSUED BY | |
| |
Private non-financial corporations | | | | |
| Issued in Australia | 38 784 | 45 475 | 56 870 | |
| Issued offshore | 42 471 | 47 801 | 50 044 | |
National public non-financial corporations | | | | |
| Issued in Australia | 3 976 | 3 360 | 630 | |
| Issued offshore | 9 658 | 9 481 | - | |
State and local public non-financial corporations | | | | |
| Issued in Australia | 82 | 82 | 2 | |
| Issued offshore | - | - | - | |
Banks | | | | |
| Issued in Australia | 49 425 | 63 174 | 73 506 | |
| Issued offshore | 146 674 | 179 283 | 204 103 | |
Other depository corporations | | | | |
| Issued in Australia | 9 861 | 10 645 | 11 769 | |
| Issued offshore | 23 449 | 20 469 | 14 353 | |
Life insurance corporation | | | | |
| Issued in Australia | - | - | - | |
| Issued offshore | 1 258 | 1 186 | 1 484 | |
Other Insurance corporation | | | | |
| Issued in Australia | 340 | 290 | 461 | |
| Issued offshore | 3 029 | 2 981 | 2 380 | |
Central borrowing authorities | | | | |
| Issued in Australia | 60 072 | 58 059 | 60 871 | |
| Issued offshore | 25 409 | 27 822 | 30 305 | |
Financial intermediaries n.e.c. | | | | |
| Issued in Australia | 79 326 | 98 941 | 124 991 | |
| Issued offshore | 63 068 | 67 388 | 89 230 | |
National general government | | | | |
| Issued in Australia | 57 913 | 57 598 | 55 356 | |
| Issued offshore | 1 074 | 878 | 883 | |
State and local general government | | | | |
| Issued in Australia | 285 | 235 | 230 | |
| Issued offshore | - | - | - | |
Rest of the world | | | | |
| Issued in Australia | 40 062 | 64 418 | 76 084 | |
| Issued offshore | 63 082 | 82 592 | 91 646 | |
Total | 719 298 | 842 158 | 945 198 | |
HELD BY | |
| |
Private non-financial corporations | 7 900 | 9 910 | 17 299 | |
National public non-financial corporations | 20 | 15 | 15 | |
State and local public non-financial corporations | 86 | 42 | 42 | |
Central bank | 35 248 | 45 214 | 42 647 | |
Banks | 50 698 | 50 222 | 54 769 | |
Other depository corporations | 19 839 | 21 048 | 24 329 | |
Life insurance corporations | 44 157 | 48 506 | 49 876 | |
Pension funds | 59 861 | 78 690 | 86 930 | |
Other insurance corporations | 31 302 | 33 940 | 33 670 | |
Central borrowing authorities | 9 918 | 9 545 | 11 637 | |
Financial intermediaries n.e.c. | 48 022 | 54 756 | 63 356 | |
National general government | | | | |
| State and local general government | 704 | 2 513 | 1 513 | |
| Households | 7 277 | 8 109 | 6 942 | |
| Rest of world | 404 266 | 479 648 | 552 173 | |
Total | 719 298 | 842 158 | 945 198 | |
| |
- nil or rounded to zero (including null cells) |
Source: Australian National Accounts: Financial Accounts (5232.0). |
Foreign exchange market
The foreign exchange market is the means whereby currencies of different countries can be bought and sold. In October 1983, the Australian Government floated the Australian dollar, allowing its value to be determined by market forces with few exchange controls and little Reserve Bank intervention. Prior to 1983, the Australian dollar was pegged to a basket of currencies. The currencies in the basket were weighted according to their trading significance to Australia. Table 27.20 shows the value of the Australian dollar against major currencies.
27.20 VALUE OF AUSTRALIAN DOLLAR, Against major currencies |
| |
| At last trading day in June | |
| 2005 | 2006 | 2007 | |
| |
United States of America dollar | 0.7659 | 0.7440 | 0.8521 | |
United Kingdom pound | 0.4254 | 0.4099 | 0.4282 | |
Japanese yen | 85.0400 | 86.0800 | 105.4900 | |
Euro | 0.6379 | 0.5925 | 0.6376 | |
| |
Source: Australian Tax Office. |
Currencies are traded for many reasons: because of exporting or importing requirements, investing or borrowing overseas, arbitraging (i.e. taking advantage of short-term discrepancies in rates) or speculating on possible exchange rate movements with a view to making a profit. Table 27.21 shows daily averages of foreign exchange turnover against all currencies. More recent information may be found in the
Reserve Bank of Australia Bulletin table F.10 (
<http://www.rba.gov.au/Statistics/Bulletin/index.html>).