Coming close on the heels of Greece’s macro-economic woes are China’s worsening economic indicators and market sentiment. Just when the world markets were heaving a temporary sigh of relief from a possible Grexit and an economic shock-wave, the Dragon seems to not only be losing its fire power but also ailing from the flipsides of a fixed currency regime, and a shallow equity market marked by inefficiency.
What is the likely impact on Australian lending markets? Is there a doom in the wake of this gloom?
We think there may be cause for concern for small and medium businesses and in particular the property industry, and here’s why:
RBA’s monetary policy over the last few quarters has been to gradually devalue AUD against USD with a view to aid the resource industry which has been hit by weaker demand and excess supply. Ideally, a central bank may have to lower the cash rate or raise the inflation target to devalue currency, given the limited leg room with inflation RBA’s preferred monetary tool has been the cash rate, and RBA has been on a warpath to keep them as low as possible.
Enter Greece, China and a wide degree of correction in global markets leading to lower liquidity, higher yields and strengthening of USD (flight to quality / safe harbor currency) leading to an even lower AUD, causing RBA to leave the cash rate unchanged. However, a broad-based correction to the equity markets in the past led to shrinkage in credit availability impacting small and medium businesses as banks cut their credit exposures in order to boost their capital adequacy ratios.
In summary, there is a reasonable likelihood of credit shrinkage to the small and medium businesses and property developers.
What are the possible alternatives for businesses to avoid being sucked into this financial maelstrom?
Timely access to capital makes all the difference between a successful and profitable venture and one that never takes shape despite stellar prospects. Businesses should take steps to explore alternative funding channels and de-risk existing funding lines from getting disrupted. Australia has a well-developed alternative funding market with established super funds, non-bank lenders, investment banks, high net worth investors and family offices.