Australia's top financial regulators say there is room for more competition in the $1.85 trillion superannuation sector, but they have failed to back the most radical proposals to bring down fees.
The high cost of super is a key focus of financial system inquiry chair David Murray, who observed in his interim report there was "little evidence of strong fee-based competition" and super costs were higher here than overseas.
The comments have sparked a fierce response from the powerful superannuation lobby, with funds arguing cost must be compared with performance.
But the latest submissions from the Australian Prudential Regulation Authority, Reserve Bank and Australian Securities and Investments Commission all say there remains scope for more competition in the retirement savings sector, notwithstanding some signs of improvement.
ASIC noted a "continued lack of fee-based competitive tension" in super, and it said this was influenced by the fact many members were uninterested in their super savings.
Funds often had opaque fee models and tended to compete on product features that were hard for consumers to compare, it said.
That's all for today, folks. Thanks for reading and posting your comments - we'll be back all rejuvenated tomorrow at 9am.
Here's the evening wrap of today's session.
Here are today's biggest winners and losers in the ASX200:
The sharemarket has eked out a small gain after losing its early momentum, in low-volume trading with Wall Street closed today for a public holiday.
The benchmark S&P/ASX200 index inched up 3.9 points, or 0.1 per cent, to 5629.8, while the broader All Ords gained 4.7 points, or 0.1 per cent, to 5629.3.
Among the sectors, materials ended flat after a promising start, financials added 0.1 per cent while IT stocks plunged 0.9 per cent.
House price growth has reaccelerated at spectacular rates over the last three months, Christopher Joye notes on afr.com:
Nationally, house prices have surged at a 15 per cent annualised pace over the quarter ending 31 August with more expensive properties leading the way. Contrary to many claims (including the RBA’s), Australia’s housing boom has neither ended nor cooled with auction clearance rates spiking over 80 per cent in Sydney on the weekend.
Speculative investors in Aussie housing market now account for as large a share of new housing finance flows (almost 39 per cent) as they did during the 2002 and 2003 boom that caused the RBA so much grief. This explains why the share of risky “interest-only” loans has surged to 43.2 per cent in June, which is way above the 34 per cent average since March 2008.
And people are taking these interest-only products, which remind me of the teaser adjustable-rate investment loans that proliferated in the US before the GFC, despite the fact that borrowing rates are at all-time historical lows.
I expect the current boom, which is arguably turning into a bubble, to continue until the RBA starts raising interest rates. Importantly, you do not require mania or double-digit credit growth to have a bubble, as some pundits claim. What you do need is asset prices way above reasonable estimates of fair value and high levels of leverage, both of which Australia possesses today.
Credit growth numbers are only meaningful relative to incomes and the level of leverage. Like house price appreciation, credit growth is running at multiples of incomes and increasing leverage, which should give us all pause. Anyone not worried about current Australian house price dynamics is a fool.
This only ends two ways: higher interest rates and/or macro-prudential brakes on lending.Back to top
As takeover deals go, it barely registers, but for shareholders of Clearview Wealth a small life insurer and funds management outfit, it's been well and truly worth it.
Late last week, Clearview said it would buy a financial advisor, Matrix Holdings, for a mix of shares and cash worth $20 million - news that has pushed up the Clearview share price by 9 per cent so far today, to a peak 96 cents.
In the process, this has boosted Clearview's market cap by around $50 million - twice that of the value of the deal on the table.
The local sharemarket sat in the eye of an information hurricane today, CMC chief market strategist Michael McCarthy notes:
- Sandwiched between the just completed company reporting season, and ahead of a central bank and macro data packed week, shares marked time on low volumes. After an initial burst of enthusiasm, shares settled over the rest of the session to finish modestly higher.
- Property shares fared best, led higher by the newly created Scentre Group, after media reports of potential joint venture partners for its New Zealand shopping centres. Telcos also fared well as Telstra regained some of the ground lost after going ex-dividend last week. Harvey Norman shares attracted attention, adding to Friday’s results based 8% rise with a further gain of 4%.
- At the other end of the spectrum, broker downgrades for Woolworths saw staples sag, and the industrial sector fell after Toll Holdings traded ex-dividend and Qantas shares gave up some of last week’s spectacular post result rise.
- China manufacturing data dampened sentiment, and ahead of RBA and ECB decisions this week, and a rain of global data, investors largely waited for the next shoe to drop.
The most positive surprises of the season (based on a combination of share price reactions and earnings revisions) were delivered by Cochlear, Orora, Caltex Australia, CSL, Arrium, AMP and Harvey Norman, UBS says.
The most disappointing results were Transpacific Industries, James Hardie Industries, Recall Holdings, JB Hi-Fi, Bluescope Steel, Henderson Group and Coca Cola Amatil.
But the investment bank's main takeaway from this reporting season is that dividends have surprised on the upside, while on the flip side companies have a more subdued growth outlook:
- The Australian market looks set to record EPS growth of just over 12% for FY14. However, this was boosted by a (likely short lived) bounce in mining sector earnings. Ex-resources, earnings appear set to grow 9% - still a solid result.
- The earnings growth rate slips to only 3% for the industrial ex financials (cap weighted), although the median industrial-ex-financial stock has posted FY14 growth of 6%. The underlying message on earnings growth is that the typical stock is growing earnings at a mid-to-high single-digit rate in FY14.
- The FY15 market EPS growth expectation fell slightly, and now sits at a more subdued 5.5%, constrained by flattish estimates for the mining sector (which still have downside in our view) and a mid-single digit estimate for the banks. We believe the 9% expected growth for industrials ex financials is already embedded in the "expensive" forward PE of 17.7x, while the EPS revision trend is still moderately to the downside for the sector. The A$ still presents a big swing factor on FY15 growth with a lower currency required to hit the 5% market growth estimate, in our view.
Government agencies and policing bodies gained access to 84,949 Telstra customer records in financial year 2014, according to the carrier’s annual transparency report.
“Between 1 July 2013 and 30 June 2014, we received and acted on 84,949 requests for customer information,” the company said. “Of this, 2,701 were warrants for interception or access to stored communications.
“Outside of Australia we received less than 100 requests across all the countries that we operate in.”
Of the 84,949 cases of information handed over by the company, just 598 were in response to court orders while 2,701 were based off warrants for the interception to data. Around 6,202 were related to emergency calls for help to Triple Zero or similar services.
Telstra said the vast majority, 75,448, of these records were carriage service records, customer information or “pre-warrant checks” that determine whether or not a customer is still active at the company.
The Telstra Transparency Report’s release comes as the telecommunications industry negotiates with the federal government over what will be included in its highly controversial metadata storage scheme.
Leveraged funds continue to buy into the stronger USD theme, increasing their net long USD positioning for the sixth consecutive weak, ANZ notes:
- The $US3.7bn increase in USD positioning to $US23.4bn during the week was primarily against JPY, EUR and GBP.
- Net short positioning in EUR was also increased by $US1.7bn. This was likely on the back of dovish comments from ECB President Draghi at the Jackson Hole symposium on August 22, suggesting that further easing measures in the Eurozone has become more likely. Total net short positions now stand at $US21.6bn, the highest level since June 2012.
- Net long positioning in the AUD increased by 7.0k contracts ($US0.7bn) even as RBA Governor Stevens noted that the AUD/USD is still too high in his semi-annual testimony. Positioning in NZD on the other hand, has declined for the sixth consecutive week.
Even more listed companies are waiting until the last possible day to release their results, the Australian Shareholders’ Association says.
On Friday, the last day of the earnings season for issuers with June 30 balance dates, a staggering 262 different companies released their results, up from 243 at the end of the Febriary reporting season, ASA said today.
ASA chairman Ian Curry said the only mitigating statistic was the lower proportion of loss-makers, which fell to 67.5 per cent this season from 75 per cent in February.
Curry said it would be preferable if larger companies such as Woolworths, Virgin Australia, Harvey Norman, McMillan Shakespeare and Transfield Services avoided being associated with this last day deluge in future reporting seasons.
In terms of the timing of Friday’s announcements, 114 of the 262 were posted after the market had closed at 4pm, ASA said.
“This is particularly disappointing considering that investors, analysts, media and stakeholders are generally switching off from the market at this time of the week,” Mr Curry said.
“And when you consider the volume of losses disclosed late on Friday afternoon, it is clear that some companies are hoping their poor performance won’t be noticed in the deluge.”
And there are more laggards: until 9am this morning another 22 companies had filed, with six posting profits and 16 losses, ASA noted.
Well at lest we know where part of the 25 per cent stake of WDS which was sold through the market last week went to, with Thorney Investments admitting it has emerged with a 6.7 per cent stake in the mine servicing outfit.
Pala sold out late last week via a bookbuild, after emerging as a significant holder after WDS fell on hard times in 2010, at a time when litigation funder IMF sought (unsuccessfully) to launch a class action.
Pala sold at 92 cents via a book build and with WDS up another 2.5 per cent at $1.025 so far today, Thorney is already well ahead on the buy.
Chinese steel futures are continuing their decline, with buyers concerned by persistent overcapacity problems, especially after a weaker-than-expected performance by China's manufacturing sector in August.
The most traded rebar contract on the Shanghai Futures Exchange ended the morning at 2925 yuan ($US476) per tonne, down 0.4 per cent to a new low. The most active iron ore contract for September delivery on the Dalian Commodity Exchange finished at 622 yuan per tonne, down 0.8 per cent.
Iron ore for immediate delivery into China ended Friday up 0.7 per cent at $US87.90 per tonne, recovering slightly after nearly two weeks of consecutive daily declines. It fell 8 per cent over the whole of August.
The China Iron and Steel Association (CISA) encouraged end-users to delay orders and run down their iron ore inventories on the expectation of cheaper prices, but traders said a sustained improvement this month looks unlikely.
"I think people are mistaken if they think there is going to be a big recovery in September," said a manager with a Beijing-based commodity trading house. "There is probably going to be more steel demand, and some restocking, but there is no solution to the overcapacity everywhere in housing, in iron ore, in steel products," he said.
ANZ said in a note that despite the Friday increase, the market remained "pessimistic" and steel mills were still only restocking "sporadically".
At the same time, steel production has remained close to an all-time high, with many struggling mills worried that any decision to cut output would reduce their cashflow and put them at further risk of closure.
The latest CISA figures showed that product inventories at steel mills reached 15.25 million tonnes in mid-August, up 4.68 per cent from the first 10 days of the month.
Analysts said the increase reflected the reluctance of traders to take on new stock, despite expectations of improving seasonal demand, with prices weighed down by the supply glut.
Ross Gittins lends a helping hand to Australia's fiscal managers in his latest column:
When we judge the performance of chief executives, most of us know the boss who's good at cutting costs isn't worth as much as the boss who's also able to improve the outfit's products and processes. Well, the same goes for treasurers and finance ministers - and their econocrats.
It seems the fiscal managers are running low on good ideas. But not to worry - the former Treasury and prime ministerial adviser Dr Ric Simes, now of Deloitte Access Economics, had some useful advice to offer in a speech to the Australian Business Economists last week.
Simes argues governments themselves have an important role to play in achieving the improved productivity performance the econocrats keep saying we need. Especially when "productivity" is better thought of as "technological progress" and that the figures for measured productivity aren't as important as actual improvements in welfare.
To me, this means econocrats should urge their masters to tread carefully when powerful business interests, fighting to shore up a technologically superseded business model, demand that governments make breaches of government-granted copyright a hanging offence.
There is no doubt National Australia Bank chief executive Andrew Thorburn has hit the ground running.
In his first month in the job, Thorburn has reshuffled NAB's top executive ranks, flagged further provisions in its United Kingdom arm, and on Friday he unveiled plans to float its United States interest, Great Western Bank.
It's common for new chief executives to "clear the decks", of course. But as some long-time bank-watchers point out, it's hardly the first time NAB has sent the market a signal it is taking action to fix things.
Deutsche Bank analyst James Freeman has said that rather than a clean-up, what NAB needs is "deck scrubbing" if it is to thoroughly turn around its reputation with investors.Back to top
September is historically no friend of investors but experts are wondering if the first positive June quarter since 2009 could pave the way for a welcome break from tradition or play into the hands of Wall Street's most vexed month.
Shares sealed an unlikely win registering a 0.02 per cent gain for the second-quarter and advancing for the first time in five years over the three months to June 30.
"If you actually have a look at the June quarters we've had six negative ones in the past 10 years," according to Perpetual Investments head of investment research Matthew Sherwood.
"You can construct a reasonable argument that negative quarters we've seen in June have generally coincided with positive September quarters."
Banks and miners are buoying the benchmark index, despite two rounds of manufacturing data from China coming in slightly below expectations.
As investors digest a mixed earnings season in the past two weeks, a local gauge of price pressures showed consumer price inflation at its lowest in seven months in August, adding to predictions of no rate rise when the central bank board meets tomorrow.
"Everybody's realising that the low interest rate environment, which they've been trying to call the end of for six to 12 months, looks like it's going to persist," said Chris Kimber, managing director of Kimber Capital.
"There's a whole group of people who have been in too much cash that start buying because they're afraid of missing out on ex-dividend season."
Tensions over Ukraine pushed up metals and oil prices with fears that the growing political crisis engulfing that country may hamper global demand for commodities.
European Central Bank chief Mario Draghi’s shift towards quantitative easing is reverberating 17,000 kilometers away in lower Australian mortgage rates.
Draghi’s August 22 comment at the Jackson Hole central bankers' conference that he will “use all the available instruments” to stabilise prices added to an already benign interest-rate environment that sent relative yields on Australian financial debt to seven-year lows.
That’s helping banks trim mortgage rates, providing the Reserve Bank with a de facto easing even as investors bet it will keep policy unchanged tomorrow for a 13th month.
“The likely action from the ECB will add to a very low interest-rate environment globally,” says Susan Buckley, Brisbane-based managing director for global liquid strategies at QIC Ltd. "You’ve got another major central bank potentially buying paper in the market, so that’s going to help bank funding generally speaking globally and that flows through to Australia.”
Traders are pricing in a 30 per cent chance of a rate cut over the next 12 months, according to swaps data compiled by Credit Suisse. But just about every economist expects the central bank to keep the rate unchanged at 2.5 per cent when its board meets in Adelaide tomorrow.
Japan's Nikkei index has edged up 0.3 per cent, led by gains in some mid- and small-cap shares, but the advance is mostly capped on worries the Japanese economic recovery from a tax hike earlier this year may be weaker than initially thought.
Many large-cap shares are listless as geopolitical concerns added to an already shaky outlook for Japan's economy, due to soft domestic consumption and lacklustre exports.
"People can't come up with any scenarios for a rally in large-cap shares. So, they are taking the easy way out by dealing in smaller shares at the moment," says a trader at a Japanese brokerage.
There is a growing perception that Japan's recovery is not so strong after a 6.8 per cent contraction in April-June following a sales tax hike in April.
"The Japanese economic recovery seems weaker than initially expected. Consumption has fallen more than expected," said Hiroshi Ono, the head of equity investment at Sumitomo Life Insurance.
Such worries are probably the main cause of the Nikkei's underperformance in recent weeks, market players say.
Turning back to local economic data - we did mention the focus is shifting from earnings to macro settings - falling commodity prices have delivered a big hit to profits for the mining resources sector.
Company gross operating profits fell 6.9 per cent in the June quarter, weighed down by a 12.2 per cent fall in mining sector profits, official figures show. Economists had tipped a 3 per cent decline over the quarter.
Meanwhile, business inventories - unsold stock - rose 0.8 per cent in the quarter, coming in ahead of estimates for a 0.3 per cent rise.
JPMorgan economist Tom Kennedy said mining companies had been hit by falling commodity prices and the general move lower in the terms of trade.
‘‘At the same time the inventory build was based on the mining sector, so its clearly a big factor,’’ he says.
Kennedy said the weak company profits figures and the strong inventories data should offset each other and he is leaving his forecast for Wednesday’s economic growth figures unchanged.Back to top