With the fall in interest rates last week, and record scrutiny of foreign investment by FIRB, not to mention the ongoing COVID crisis and the uncertain world economic outlook following the US election, some investors could be forgiven for stitching the mattress lining to hide away their savings.
But it is Hazelbrook's view that these factors are supporting a positive outlook for domestic investment in the first quarter of 2021, and our anecdotal experience is lining up with that forecast with an uptick in transactional activity across the board, including plenty of activity in tech, finance and, agribusiness.
The RBA's announcement to lower interest rates are always a sure predicator to increased activity as investors seize on the relative affordability of borrowing. Given that M&A has already shown signs of revived interest despite an early dip because of COVID-19, this can be expected to reboot investment activity.
WHAT ARE THE FIRB CHANGES?
The Government's changes to FIRB policy have been in the news consistently this year, and have been seen by some commentators as a handbrake on foreign investment, whilst welcomed by others as a much-needed increase in measures to protect Australia's sovereign wealth- particularly in terms of real resources – agricultural land, energy, water, and mining being top of the list. The proposed changes shift the focus for evaluating foreign investment to one of whether the investment target relates to ‘sensitive national security businesses'. The precise meaning of this is undefined, and if history is anything to go by, is likely to stay that way. This is because policy approaches favour flexibility, allowing FIRB to consider all relevant factors.
IMPACTS ON INVESTMENT
With Australian domestic cash rates at a historically unprecedented low, and FIRB barriers climbing, this presents a golden opportunity for domestic investors who have weathered the COVID storm – particularly for Australian bidders in sensitive businesses like agriculture and resources. Conversely, a relative decline in competitive international bids might see some sellers frustrated by the absence of suitors, and those who can afford to hold off may do so in an effort to generate more interest in future once the international environment has settled, and, perhaps, FIRB restrictions are wound back to pre-COVID levels. However only time will tell if these measures will become a permanent feature of the Australian foreign investment infrastructure.
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