Non-mining investment, already at 60 year lows relative to GDP, contracted at twice the rate expected in the March quarter despite lower interest rates and the cost of financing at generational lows, said Credit Suisse Australian equity strategist Hasan Tevfik.
“We believe it is the influence of income-seeking shareholders, the biggest marginal buyer of Aussie equities who are stopping capex and the shareholders in the epicentre of this trend are [SMSFs],” said Mr Tevfik.
SMSFs have one core asset, Aussie equities, in which they own 16 per cent of the market cap, he said.
“Two thirds of this is through direct ownership and their allocation is rising as their cash allocation is falling,” he said.
Mr Tevfik said SMSFs in pension phase, in particular, underpin the dividend trade since they “crave dividends to replenish their lost assets under management and love franking [credits] because of their zero tax status”.
Australian companies will continue to try and keep income-seeking SMSFs happy by growing dividends further, he added.
“However, we expect distribution growth will continue to come at the expense of capex; record high payout ratios and record low investment are two sides of the same coin,” said Mr Tevfik.
“While lower capex may impinge on future growth, [SMSFs] don’t seem to care.”
Mr Tevfik suggested SMSF investors also consider stocks that provide high dividend growth rather than just high dividend yield.
He recommended stocks such as Macquarie Group, AMP, QBE Insurance, Sonic Healthcare, Asciano, Boral, Bank of Queensland, Flight Centre, Challenger Limited, IOOF Holdings, Perpetual Limited, Fairfax Media, CSR, M2 Group and Nine Entertainment.
And just why is it the SMSF investors fault?
At 16% i would hardly have thought this to be influential.
I wonder whom holds the other supposedly NON influential 84% of aussie shares.
It is interesting that this major percentage is not having any influence on the capex investing market?
Dear me, those pesky SMSFs again. SMSFs, like any other investor, are looking for the best return on their investments – in fact, it’s their duty to do so. It is the duty of company directors to make capital allocation decisions in the best interests of the company and its shareholders. They must make the judgement about how to spend the company’s profits. SMSF owners do care about the long term viability of the companies they invest in. SMSFs tend to be buy and hold investors, unlike the mainstream funds, hedge funds and, dare I say it, investment banks that trade the market actively and love a bit of volatility.
Duncan Fairweather
Executive Director
SMSF Owners’ Association