Government initiatives to further boost inward investment

Prosperity Fountainguard Advisers welcomes the Federal Government initiatives announced under the Industry and Competitiveness Agenda that will expand the Investor Visa Programme.

The Government will reform the programme to encourage more high net worth individuals to make Australia home and to better direct additional foreign investment, while maintaining safeguards to ensure the migration programme is not misused. The changes to the programme will:

  • streamline and enhance visa processing, further promoting the programme globally and strengthening integrity measures, to both increase the attractiveness of investing and settling in Australia while ensuring Australia’s interests are protected;
  • align the criteria for complying investments with the Government’s national investment priorities. The investment eligibility criteria will be determined by Austrade in consultation with key economic and industry portfolios;
  • introduce a Premium Investor visa (PIV), offering a more expeditious, 12 month pathway to permanent residency than the SIV, for those meeting a $15 million threshold;
  • and task Austrade to become a nominating entity for SIV (complementing the current State and Territory government’s’ role as nominators) and to be the sole nominating entity for PIV.

We led a nine city investor roadshow throughout China in June, and saw that although there is strong interest in Australia as an immigration and investment destination, and there is a reasonable pipeline of SIV applications, we face strong competition from other jurisdictions. Recent changes in NSW have made this State more attractive with the removal of the need to invest $1.5m in Waratah Bonds recently removed and the Commonwealth measures will only assist to further attract high wealth investors in the future.

Discussions with potential investors in China revealed certainty and clarity of the process were issues that are front of mind for potential SIV applicants when considering which country to pursue.  While the initial detail is scant, it appears the initiatives proposed will assist on those fronts. There is uncertainty in other countries SIV programs at the moment and the Government’s focus to enhance the scheme and encourage investment in the right areas as well as remove red tape will continue to make Australia an attractive destination.

Prosperity Fountainguard have a second investor delegation en route to Shanghai at the moment and they will present to over 20 potential investors in the higher net wealth category who are looking to invest $20m plus in Australia.  The proposed Premium Investor Visa will no doubt assist that group with their decision making and the revised program commencing in 2015 that allows an applicant to gain residency after twelve months is likely to be highly attractive.

We are eager to understand the detail of the new investment eligibility criteria.  These are no doubt designed to temper some of the strong interest in property development.  However, if the measures are too prescriptive, it may serve to stifle investor inflows or move them away from areas that Chinese investors are typically attracted to.

New South Wales fights for a bigger share of Significant Investor Visas as the Federal Government tries to curb leverage

New South Wales (NSW) has introduced measures to increase its competitiveness in attracting Significant Investor Visa candidates. The NSW Government has recently removed the requirement for NSW bound significant investor visa applicants to invest $1.5M of their $5M investment for residency into NSW Treasury Bonds.  At the same time the Federal Government has also flagged likely changes to remove the current practice where many SIV applicants borrow against their $5M investment in Australia and essentially recycle money back offshore.

The NSW Treasurer Andrew Stoner in announcing the changes recently said, “From 1 September, overseas investors considering NSW nominations will be able to choose how to invest every dollar of their complying investment.

“This change will further consolidate NSW’s globally competitive position as a preferred investment destination for investor migrants.

“NSW is more than Australia’s business headquarters – it’s the State that’s driving Australia’s economy. “Rich in business opportunities, with a stable and strong government, and an economy that is robust, diverse, dynamic and easily accessible to the rest of the world, there has never been a better time to invest in NSW.”

It is evident that NSW is keen to increase it’s share of significant investor visa candidates that choose NSW as their preferred place of investment. Of the 1,650 expressions of interest registered at 31 August 2014, Victoria (VIC) represented 846 of the candidates and NSW 550. In terms of granted visa’s again VIC leads the way with 193 granted as against 146 in NSW.

The change in the requirements around investing a portion of the investment in a lower yielding investment is only likely to enhance the share of SIV applicants seeking out Sydney and NSW as their destination of choice. The Federal Government has plans to grow the program to approximately 700 SIV approvals per year, with the view to attracting $3.5 Billion of inbound investment in the Australian economy through the program and it is clear that NSW wants a larger piece of the action.

In further changes to the scheme on 10 September 2014 Immigration Minister Scott Morrison, in a media release stated will no longer be able to recycle their investment funds offshore by using products that allow them to borrow against their SIV compliant investment. Minister Morrison referred to concerns with the significant investor visa scheme, which requires foreigners to invest a minimum of $5 million for four years, as money was being invested and subsequently borrowed against and recycled offshore again. The intention of the scheme is to attract foreign investment and enhance economic activity through longer term investment in Australia.

Mr Morrison flagged changes to the investor rules which would require investments to remain unencumbered or without a debt against them, for the entire four years duration of the visa. This change should only be a positive for the economy in allowing funds to remain in Australia unencumbered over the four years.

Don Lee, Luke Malone, Martin Zhao and Gavin Fernando are Directors of FountainguardProsperity’s Asian Business Desk team who provide a full range of accounting, financial and wealth management advice to the Chinese market.

Prosperity’s China Investor Roadshow featured in AFR

 

 

 

 

 

 

 

 

Click on link to view article http://tinyurl.com/l93fxz8

 

 

Green Shoots

The Federal Election has come and gone, leaving the result most business owners and investors were expecting but will the confidence instilled by a more stable Government bring the green shoots Australia needs?

In the week leading up to the election when our Nation’s fate looked sealed firmly in blue tape, the consumer confidence number started to climb, rising by 4.7% in September from August and sitting at 110.6, above the 100 level where optimists outnumber pessimists.

The business confidence numbers also strengthened significantly in this period, with the index rising in August to its highest point since May 2011.  The consecutive cuts in the cash rate may have helped, but seemingly more important were the anticipated political changes.

Nationally, housing is also providing a badly needed sign of life in our economy, with six consecutive weeks of 80%+ auction clearances in Sydney at the time of writing, and Melbourne achieving their highest rate since 2010, at 76% .

Equities, which were struggling under the weight of the Syrian crisis and the end to quantitative easing in the US in August, seem to have lifted their tone with the news that Russia and America plan to do everything they can to avoid full blown conflict.

Could these be the green shoots of Spring in our economy that so many are looking for to invest?

Over the coming three months we are looking for three shifts in the market:

We expect the USA will continue down the forewarned path of reducing its quantitative easing, bringing to fruition something the market already expects.  This could cause some market instability around announcements.

We see the continued weakness in commodity prices and Asian markets driving a gradual and painful weakness across the mining economy in Australia and a continued flow through to other sectors.

And the handbrake coming off Australian business confidence, as the Liberal Government starts to make their policy changes.

One big hope we all have is that the recent reduction in the $A dollar will act as a natural stimulus improving investment and export growth that stimulates our business economy.

Significant investment in Australia – a growing Asian trend

At Prosperity, through our extensive global alliances with LEA and IAPA, we are noting that foreign investment into Australia continues despite the softening economy.

Barely a week goes by without an enquiry from our USA, UK or Asian colleagues seeking advice on Australian investment and regulatory issues. More recently we are fielding enquiries from those seeking to migrate using a Significant Investment Visa.

In fact, in the coming financial year, immigration lawyers, BasisPoint predict there are more than 1000-1500 significant investment visa applications expected for investors and their families. An annual quota of approximately 7400 visas has been allocated as investors and their family members elect to move here under the Business Innovation and Investment Visa program.  With an average of 3.5 people per family unit the upper limit would sit at 2114 as a real ceiling to the quota.

The Significant Investor Visa program for Australia was only launched in November 2012, and this year is expected to yield $6b in annual inflows to Australian funds and businesses from ultra high net worth investors, predominantly from Asia.

Foreign investment in Australia isn’t a new thing, but investment coupled to migration is certainly on the rise with dramatic increases in interest from China and other Asian nations.  China was ranked as Australia’s third largest foreign investor ($16.2b) in the 2011/12 financial year, behind the US ($36.6b) and the UK ($20.3b), but Chinese foreign investment arrived in much smaller parcels.  The average deal size done by Chinese investors was $3.4m which contrasts with the average US sourced deal size of $136.6m.

The most common deals done by investors were in the resources and real estate sectors, accounting for 32% of all foreign investment over the year.

What this says to us is that the Chinese investor is out there looking for investment opportunities that are smaller in size and more accessible. Asian clients we have represented are taking a drip feed approach with bite sized investments initially as they seek to understand our domestic markets and regulatory regimes.

But what are they buying? There were 11,142 Foreign Investment Review Board (FIRB) approvals last year from over 40 countries and 9768 of them were for residential real estate.

Those moving here on Significant Investor Visas are mostly first generation wealth and often have a wider range of risk appetite and investment outlook than those who are carrying second or third generation wealth.

For more information into the Significant Investment Visa please contact Luke Malone, Director of Prosperity’s Asian Business Desk.

Doom and gloom or the roaring bull?

While interest rates may need to fall a bit further, green shoots of recovery suggest we are at or near the low and more importantly, point to an improvement in economic and profit growth over a 12 month horizon, according to Dr Shane Oliver, Chief Economist from AMP.

“All I hear is doom and gloom… All is darkness in my room”

Dr Shane Oliver opened his Economic Update for our Sydney office last week with a riff from the new Rolling Stones song “Doom and Gloom” released this year.

His pragmatism was clear, despite the recent rise in equity markets that has occurred since December 2012, he wants investors to retain cautious optimism and look forward to more growth.

Many of the worst-case scenarios that economists predicted for 2012 didn’t happen:

  • Italian and Spanish bond yields fell when many expected them to rise,
  • The US didn’t have a double dip or fall off the fiscal cliff,
  • The Australian dollar traded within a narrow range all year; and
  • The world didn’t end on December 21, the end of the Mayan calendar.

Many of the issues that people were concerned about last year can now be seen receding and Shane Oliver himself says he is feeling more sanguine with the world’s economic prospects.

In 2012, listed REITs were the star performers, enjoying a return of 30% in Australia and 27% globally.  Cash on the other hand achieved only a 4% return.

In 2013, he expects the world to grow steadily.  He predicted that China will grow 7.5-8% and that the tail risks in Europe will continue to recede.  “Europe is still in recession right now, but the economy is showing signs of growth,” he said.  “All is starting to look OK in the US, with retail sales motoring along, the fiscal cliff now resolved, and housing starts are picking up.  We are also impressed to see that US debt to GDP ratios has fallen from 11% at the height of the GFC to 6% today.”

According to Dr Oliver, Japan finally seems to be getting it right too with the election of new Prime Minister Abe who has won the election on inflation friendly policies that make it look like it will go down the same recovery track as the USA.

Australia, he says is showing signs of green shoots, despite our determination as a Country to be pessimistic.   Retail sales were up in January, job ads were up in January, and new home sales and auction clearances are looking up too.

“Mining is moving into a cyclical decline, which will force our economy to be more dependent on the non-mining sectors over coming years for stability.  Whilst this presents concerns, the reserve bank is supporting growth and consumer confidence is rising, with it up over 15% in the last year.  Political risks remain and are likely to hang around until we have removed the hung parliament and returned certainty to our Government in September.

He believes that the seven cuts in interest rates we have seen over the last eighteen-month period are starting to be felt right across the Australian economy and that we may now be nearing interest rate lows.

“I believe interest rates are near the bottom of the cycle.  With Banks offering 4.99% on fixed term loans, it simply cannot get much better.”

Dr Oliver was optimistic that the equity market has entered another cyclical bull market.  Our equity market in Australia has been rising since November 2011, about 18 months.  But research by AMP shows that most cyclical bull markets last approximately 47 months, leading him to suggest that there should be more good times ahead.

Equity markets are up 22% in the year to February, primarily due to some growth in company profits.  This has driven up price earning multiples making some of the equities in our market look a little expensive, or indicating potentially that profits might be about to rise as often happens at this point in a cyclical bull market.

What makes him think it can go higher?

“When cash rates get below about 6% people usually start moving out of cash and seeking out risk.  There is about 14% of our Superannuation system currently sitting in cash at the moment in Australia, giving us a strong pool of money that may be tempted to enter the market given a continued improvement in confidence.”

To finish off the evening, Dr Oliver highlighted the risks, which looked a lot less threatening than recent years:

  • Instability in Europe, with many watching Italy for any distress after their recent elections;
  • Any slippage in Chinese growth;
  • Any further ratings downgrades for the US; and
  • Continued softness in Australia’s non-mining economy which we will become more and more dependent on.

Article by John Manuel, Director, Prosperity Wealth Advisers Pty Ltd.  John and our other Advisers provide Financial Planning and Family Office services to our clients from offices in Brisbane, Sydney and Newcastle.

Are these the greatest opportunities in Asia right now?

As a privileged part of the Australian delegation to the Asian Financial Forum in Hong Kong last month, Luke Malone, the head of our Asian Business Desk, has his eye on Asia. 

The Asian Financial Forum last month brought together 1200 business leaders from throughout the Asia Pacific region and addressed many of the economic opportunities and issues that matter. 

Over coming months I plan to provide you with articles that give you an insight to these, so you can take advantage of our learnings as we navigate the Asian Century.

This week I want to talk about the three biggest areas of focus at the conference, and highlight what could be the most exciting opportunities for Australia in coming years:

1.  Food security and production for a growing Asian population

Food security in Asia is a large opportunity for Australian food businesses looking to produce and export into the region.  Recent data shows that we have the capacity and ability to produce food for over 500 million people here in Australia.  With growing population density throughout Asia and land shortage in many countries, the ability to produce the quantities of food for the emerging middle class in these countries seeks is becoming more and more difficult.  The changing socio-economic position of many has increased their desire to eat well, and their ability to afford high quality produce for which Australia is most renowned.  This is a trend that may change the allure of farming and food production investment in Australia in coming years.

2.  China and the ASEAN+6 Relationship will lower tariffs and build trust

This year, the 10 ASEAN Countries plus China, Japan, South Korea, India and Australia and New Zealand will start negotiating a Regional Comprehensive Economic Partnership.  The plan is to have a deal in place by 2015 creating a free trade zone that will encompass almost two thirds of the world’s population.  Lower trade barriers and greater trade integration should lower the tariff costs for businesses working across borders in these 16 countries.

3.  Chinese capital is freely flowing out of China seeking a return  

Recent figures on China’s foreign direct investment (FDI) shows two very interesting trends.  Outgoing FDI rose almost twelvefold from $5.5 billion a year to more than $65 billion per year from 2004 to 2011 and is expected to reach approximately $150 billion per year by 2015. In contrast, inward FDI fell 0.2 percent in October 2012 from a year earlier to $8.3 billion, the 11th fall in 12 months.  (Source: China Daily Jan 18-24 2013).  The sentiment of Chinese investors and businesses is strong despite some of the portrayed ‘slow down’ of the Chinese economy portrayed by the Western media.  My discussions with many prominent investors and high net wealth family groups during the Asian Financial Forum indicated that the desire for investments in Australian agricultural assets, resources, real estate and education remains strong.

Each of these issues presents terrific opportunities for Australia in an Asian context.  We are watching the trends closely with many of our Asian Business Desk clients, looking for ways that business and investment can benefit from the changes.

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About our Asian Business Desk

At Prosperity Advisers we have a dedicated Asian and Chinese business desk that understands the culture of doing business in China.

Our team includes Tax, Accounting, Corporate Advisory, Audit, Wealth Management and Mergers & Acquisitions Specialists who speak the language and have extensive Chinese and Asian business experience.  We currently act for a number of high net wealth Chinese investors and we help guide them on the transaction and regulatory path to both source investment opportunities in Australia by connecting them with the right people, while at the same time managing tax and other compliance objections.

For outbound investment into China, Luke and his team spend significant time in China and the Asian region and our connections in the region allow us to advise outbound Australian investors on the complex path of investing in China and Asia.  We are also a member of the Leading Edge Alliance, an accounting firm affiliation of some 4,000 members throughout the world and a strong presence in China and Asia.

 

Rebalancing for a new financial year… Which asset class will prevail in 2012-13?

30 June 2012 closed a difficult year for share investors. Australian shares returned -6.7% and International shares (in Australian dollar terms) – 2.1%. By contrast the Australian and International fixed income segments returned 12.4% and 11.6% respectively. That was the year that was but where to from here…

Firstly, for those investors relying on income from their investments, it is worth remembering two things about last year’s results

1.       Negative share returns do not equate to no income from shares (particularly in the case of domestic equities). The price of a share may fall but that does not necessarily translate to a fall in payout (for example, the share price of BHP fell nearly 30% but the dividend per share increased); and

2.       Positive fixed income returns do not equate to higher income from fixed interest. The pure income return from fixed interest does not change over the life of that fixed interest investment. But, similar to a share, fixed interest investments are traded and it is this market quality that results in price volatility. In general terms, as interest rates fall, the (traded) value of a fixed interest investment rises.

The headline constraints for International shares still remain – Eurozone weakness, a fragile US economy and slowdown in emerging economic growth.  However, resolution of the Greek political landscape appears to have prevented a breakdown of the economic union, there are signs of subtle recovery in the US and with inflationary pressure reducing, emerging countries such as China and India have scope to ease policy and stimulate growth. In Australia, the three big drags on shares – relatively high interest rates, a high Australian dollar and concerns about a hard landing in China – appear to be diminishing.

By contrast, with interest rate policy generally eased or easing around the World (and as noted above fixed interest prices move inversely with interest rates), there are headwinds for the fixed interest sector in the next year.

Successfully predicting the asset class that will outperform the others for the next 12 months, let alone the return itself, is fraught with danger. If you wish to speculate on that, and back that with your money, I wish you the best of luck. A less volatile approach is to diversify a portfolio of assets across a range of asset classes.  In general terms, the lower the return required from your portfolio, the lower the allocation to equities that is required. However, given that equities are yet to recover to their 2007 highs (and may well take longer than the 40 month average since 1900 to do so following the GFC), and the relative tailwinds/headwinds facing equities and fixed interest, I would be disinclined to significantly reduce existing equities exposure in re-balancing a portfolio.

Gavin Fernando is a Director and Financial Adviser with Prosperity Advisers