Financial Services Sector Update

Submitted by Craig Strzelecki on 14 May, 2007 - 19:50

Stockmarket analyst, Macquarie Research Equities have provided a financial services sector update: The 2007 Budget announced last week heralded some positive surprises for the financial services and wealth management sector. Combined with the additional superannuation changes post June 30, and the forthcoming Future Fund investment, these should provide a positive backdrop for the sector. The analyst reiterate their positive view on AMP, AXA, CGF as well as the banks, and the following summarises the key positive catalysts looming for the sector. Impact of Budget changes on super: The 2007 Budget contained a few incremental positives for the wealth management industry including: A one-off boost to the superannuation co-contribution scheme for those who made voluntary contributions in 2005–06 – which will add a further $1.1bn to the industry; The establishment of the Education Endowment Fund which will add $5bn into the industry, of which up to $2bn is likely to be invested in Australian equities; An increase in financial literacy spending to enhance awareness of super. The analysts remain positive on the outlook for the Australian wealth management landscape, which is forecast to grow by 11.9% CAGR over the next decade, as in addition to the above: The changes announced in last year’s Budget (the most significant since the introduction of superannuation) take effect from 1 July 2007 and should add 1-2% to superannuation system assets; The Future Fund, which has $36bn to invest (ex-TLS) of which roughly $13bn will be directed to the Australian equity market, will commence investing in the latter part of this year; The upcoming quarter should benefit from the transitionary arrangements, which allow retirees to contribute up to $1m into super before 30 June. The analysts also believe that legislative risk remains to the upside, with the industry still pushing for the introduction of 'soft compulsion', whereby the default is for employees to contribute 1–3% into their superannuation, in addition to the 9% mandated contributions.