Super funds urged to buy local company bonds

Former federal treasury secretary, Dr Ken Henry, has called on superannuation funds to buy Australian company bonds to reduce the nation’s reliance on offshore financing.

Henry is now a National Australia Bank board member, and he is drawing up the federal government’s Australia in the Asian Century white paper.

“Despite the several important macroeconomic functions it could serve, and the very large pool of investor capital sitting in Australian super funds that could provide reliable finance, the corporate bond market in Australia is quite immature,” Henry said.

Henry said fund managers had an ingrained preference for equities over bonds, and needed to change their mindset.

“I was told that equity would always outperform debt over any time period relevant to superannuation fund members,” he said. “I wasn’t convinced then. And I’m even less convinced today.”

HSBC chief economist Paul Bloxham backed Dr Henry’s call, arguing that it would be a great advantage for the economy and investors to have access to a deep and liquid local corporate bond market.

“Australia has an underdeveloped fixed income market, particularly corporate bond market, and if that was increased it would be helpful for macroeconomic stability,” Mr Bloxham told Australian Financial Review.

“There is a great opportunity for the corporate bond market to become a larger part of the economic landscape,” he said. “Corporate bonds are at good rates so it looks like a fairly inviting strategy from a corporate perspective, as well as from the perspective of superannuation funds and foreign investors.”