In an upcoming article for InvestorDaily's sister title, ifa, Instreet managing director George Lucas pointed out that government policies and regulation can make certain investment sectors seem more attractive than they really are.
As an example, he pointed to the US government’s social policy in the mid-1990s to increase home ownership, which inevitably contributed to the property ‘bubble’ in the United States as well as the resulting 2008/2009 global financial crisis (GFC).
When it came to possible systemic risks in Australia, Mr Lucas pointed to the federal government’s push for increased deposit-taking by the banks, as well as the deposit ‘guarantee’ that was put in place during the GFC.
“The end result is for retail customers to get significantly higher rates of interest for their deposits than wholesale customers … Politically popular, but is it good policy?” he asked.
In addition, significant increases in deposits do not always ensure a healthy banking system, said Mr Lucas.
“Look what happened in Cyprus, where banks were nearly totally funded by deposits. The concentration on this one funding source eventually meant depositors bore the brunt of the risk when the banking system failed,” he said.
While such a situation is unlikely to play out in Australia, the increased focus on deposits may have unintentionally created an imbalance in the economy, said Mr Lucas.
"There is significantly higher personal savings [in Australia] compared to other economies globally, which is hurting the non-mining sector, as consumers save and don’t spend,” he said.
“That’s an economic risk that the government seems unable and unwilling to address, and is affecting the non-mining sector of the Australian economy,” said Mr Lucas.
The Future of Financial Advice (FOFA) regulatory changes are also likely to “structurally change the way people invest”, given that the regulation “favours certain investment strategies over others”, he said.
“Just look how the regulators are jawboning SMSF trustees not to invest in property. How this plays out and how it will influence investors’ portfolios – and their returns – remains to be seen,” said Mr Lucas.
“If FOFA is not even-handed then the result could be a concentration of risk in a small number of asset classes – never a good thing,” he said.
