Super funds predicted to raise sharemarket

A leading economist predicts strong sharemarket growth as superannuation funds find the confidence to plough cash and other low-risk assets into the market.

The prediction would mean a continuation of a trend seen in the latest financial accounts data, released on Christmas Eve, which showed super funds had 14.8 per cent of their assets held in cash at the end of September. The figure is down from 16.2 per cent three months earlier, but shows plenty more movement to bring the figure to the longer-term average of 8 per cent.

The wealth of Australians also grew rapidly in the September quarter, the figures from the Bureau of Statistics show. The net financial assets of households soared 17.1 per cent, the biggest gain in the 21 years records have been kept. Per capita wealth increased almost $6500, to nearly $46,000, in just three months.

CommSec's chief economist, Craig James, attributed much of this to sharemarket growth.

''Australian households had plenty to celebrate last Christmas, with wealth levels repairing at the fastest pace on record,'' Mr James said. ''Financial wealth now stands at the highest levels in two years and further improvement can be expected in 2010, although probably not at the same pace witnessed in the past three months".

Mr James said improvement in financial wealth, together with higher house prices and a stronger job market, would support consumer spending this year.

The shift in the allocation of assets by super funds provides further evidence of a strong recovery from the global financial crisis.

''We expect a continued lift in the proportion of growth assets held in pension funds in 2010,'' Mr James said.

He forecast that super funds would need to invest about $190 billion in the sharemarket over the coming year to bring the share of low-risk assets such as cash back to the long-term level, and this would cause a marked rise in share prices.

''The longer that a super fund maintains an abnormally high proportion of money in defensive assets, the greater the risk that returns will underperform its competitors,'' he said.

The ASX 200 index closed at 4791 before the Christmas break. Mr James forecast it would reach 5300 by the middle of 2010 and 5600 by the end of the year - 20 per cent lower than its peak before the financial crisis.

Source: The Sydney Morning Herald