*as at October 2019 

Summary

• The value of unlisted equity has soared as a share of GDP since the end of the mining investment boom. By contrast, the value of listed equity has been relatively steady over the past two decades.
• The size and role of superannuation funds in capital markets continues to grow. Superannuation funds are increasingly investing in overseas assets.
• The value of private equity deals increased substantially in 2018, but the number of deals has been relatively steady since 2012.

Listed and unlisted equity

• The Australian Stock Exchange (ASX) currently has a market capitalisation of around $2 trillion, or around 100 per cent of GDP – its average over the past two decades.

• The value of unlisted equity has consistently exceeded that of listed equity. The relationship between the two was relatively steady between the early 1990s recession and end of the mining investment boom. Since then, unlisted equity has soared as a share of GDP, while listed equity has been relatively stable.

• Compared to other major advanced economies, market capitalisation in Australia is around the middle of the pack. This measure trends fairly uniformly across countries, but valuations have tended to be higher in the US, UK and Canada.

• The number of ASX listed domestic companies has more than doubled since the early 1990s recession. However, the rise has been modest since the global financial crisis.
• Australia has many domestically listed companies, particularly when compared with other major advanced economies.
  • Of the major advanced economies in Figure 6, Australia is the only country where the number of listed domestic companies has increased over the past decade.

Ownership of the ASX

• Domestic institutional investors are the largest class of investor in Australian listed equities, closely followed by foreign investors. Superannuation funds are the next largest class of investor, with equity holdings of around $500 billion. The direct holdings of households are relatively small and have been stable around $200 billion.
  • The growth in institutional and superannuation fund ownership reflects the growing pool of funds under management from compulsory superannuation and an increasing portfolio allocation to Australian equities, particularly following a period of strong growth in the Australian economy.
  • Household wealth is also invested indirectly through superannuation and other institutional investors.
• Foreign investors invest in the Australian share market to diversify their portfolios, and have equity holdings of around $640 billion. Global investors, through sheer virtue of their size, have increasingly invested in Australian equities.

ASX ownership shares

• Domestic institutional investors and foreign investors each account for around 30 per cent of stock ownership, with the foreign ownership share relatively steady the past couple of decades.
  • Domestic institutional investors include banks, financial investment funds and life insurance corporations.
• The share of listed equities owned by superannuation funds has been steadily rising from 15 per cent to 26 per cent over the past thirty years.
• The share of total listed equity owned by households has steadily decreased over recent decades, driven in part by the rise of superannuation.
  • The share of listed equity directly owned by households fell following the superannuation reforms of the 2006-07 Budget, which included the abolition of tax in the retirement phase. The package of reforms increased incentives to save through superannuation.

How do sectoral portfolios differ?

• The portfolio allocations of institutional investors, superannuation funds, foreign investors and households vary dramatically across the financial and non-financial sectors.
• For institutional investors and superannuation funds, portfolio allocations are broadly consistent with the composition of the overall share market.
• Australian households hold over half their listed equity investments in the financial sector. This reflects a preference for high-dividend yielding stocks, dividend imputation and the tax treatment of retirement savings.
• Foreign investors are relatively underweight in the financial sector. In part this may reflect a preference for greater exposure to the resources sector, and a preference for stocks with lower dividend payout ratios given these investors cannot make use of franking credits.

Superannuation

• The total assets held by superannuation funds has increased dramatically over recent decades to be worth almost $2.9 trillion today. Since late 2011, total superannuation assets have exceeded the value of all companies listed on the ASX.
• There are $1.8 trillion of assets held by superannuation funds with over 4 members, including:
  • $448 billion of international shares
  • $411 billion of Australian listed shares
  • $233 billion of Australian fixed interest
  • $180 billion of cash
  • $164 of international fixed interest
  • $104 billion of infrastructure.
• Superannuation funds, institutional investors, and (to a lesser extent) households diversify their portfolios by investing overseas. The share of superannuation assets held overseas has more than doubled over the past few decades.

Private equity

• Assets under management held by private equity were $19 billion in June 2018, slightly below its peak of $20 billion in December 2013.
• Private equity funds raised $5.3 billion of capital in 2018. This is a substantial increase over the past few years, but still below the peak of $5.7 billion in 2008. Buyout funds secured around 80 per cent of the capital raised in 2018.
• The value of private-equity backed buyout deals increased substantially in 2018 to be $12.5 billion, following two years of decline. The number of deals has remained relatively steady since 2012.