The objectives of ELRI’s research project is to examine the economics of an expanded bond market in Australia, to a level comparable with overseas markets such as those in the EU.
The Australian market for loanable funds is characterised by an over-reliance on the equity market, both from a demand and supply perspective. This characteristic limits the opportunities for small and medium sized firms to raise needed investment funds. It also reduces opportunities for investors, particularly older superannuants, to diversify their portfolios and bring greater certainty into their income stream in retirement.
The dangers of over-reliance on equities within a superannuation portfolio were graphically demonstrated during the recent GFC, with a substantial decline in the value of share portfolios.
Allowing smaller, non-government entities to float bond issues, provides an alternative source of return for investors which is potentially more stable. Entrepreneurs would also benefit from a wider choice of loanable funds.
No market is entirely without risk and an expanded Australian bond market would require sound legal and institutional frameworks. However, the success of such markets in Europe indicates that Australia would gain from a move towards setting up such markets.
ELRI’s objective is a broad scoping but rigorous study of the potential development of a strong SME bond market in Australia. The study will highlight the current constraints to this type of development as well as presenting potential solutions. ELRI is broadly supportive of the opportunities that an appropriately regulated bond market could bring to Australia, and working with industry and government stakeholders to promote its development.