[9]
When all central banks started to print money like crazy we thought we had seen all possible incentives for investors to get into the stock market to push it higher. If anyone wanted to have a decent return on its net assets, the stock market was the only place to be as the yield on both savings accounts and bonds were absolutely unacceptable.
On top of that, the current strong momentum on the general markets is fueled by share buybacks which are definitely the result of cheap debt and not because of extremely strong underlying performances.
So when we thought we had seen the craziest things, the Australian government is stepping up the plate and is doing something which is completely unheard of. In an attempt to cool the booming real estate market in Australia down, Australia will start incentivizing rich foreigners [10] to invest in small-cap companies instead of in real estate.
[9] Source: Money Morning
[11]
As per the Australian law, any investor which invests A$5M in residential properties and government bonds can receive a ‘significant investor visa’, something which Chinese investors are very keen to get. From July 1st on, the system will see a complete overhaul. Whereas under the current system only residential real estate and government bonds are allowed, at least 40% of the A$5M will HAVE to be invested in high-risk small-cap companies in Australia.
[9]
Source: S&P Dow Jones Indices
[11]
This means that everybody who would like to apply for a Significant Investor Visa will need to invest A$2M in highly speculative companies, and A$500,000 will have to be dedicated to fund start-ups and small private companies.
This is absolutely stunning and could very well lead to a bubble on the Australian stock market as small companies will see a huge volume boost and an increased demand for its stock, but unfortunately this won’t be based on the quality of said companies.
Goldman Sachs estimates the potential cash inflow in the small cap market could easily be A$3B per year which would be 30 days of trading volume, which is huge by any standards. On top of that, by forcing applicants to invest A$500,000 in venture capital, the total amount of available venture capital on the Australian market will increase by a stunning 800%!
This is a really bold move by the Australian government and could trigger other first world countries like Canada and the USA to do the same. It’s a cheap way to push the stock markets and investments in companies higher to keep the momentum going, whether it’s warranted or not.
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