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Portfolio investment overseas

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NO. 137





In my statement of 8 July, 1981, in connection with a proposal by

HIM Holdings Ltd. for investment in ASARCO Inc. I stated that the

Government was reviewing existing policy on outward portfolio

investment. This review has now been completed and a significant

relaxation of the existing policy has been decided upon.

This review was undertaken against the background of a net external

surplus of the private sector in 1980-81 of some $2850 million,

approaching twice the Budget time estimate and three times the outcome

in 1979-80.

While this injection of liquidity from abroad is a positive demonstration

of the growth and development presently taking place in the Australian

economy, it is not without difficulties so far as the task of domestic

monetary management is concerned.

With this in inind, the Government has during the course of the past

financial year allowed the exchange rate to appreciate as well as taking

other measures to offset the monetary impact of these private sector

transactions, including acceleration of the pace of sale of Treasury

Notes and recent adjustments to yields on government securities.


Mthough the level of domestic interest rates is an important factor

in achieving monetary objectives in any year, it is also a factor influencing

private capital inflow.

In this context it was therefore something of an anomalous situation that

restrictions were maintained on portfolio investment overseas at a time when

the Government was having difficulty achieving its monetary objectives in

large measure as a result of the higher than expected net private capital


Hence these and other considerations encouraged the Government to review

existing restrictions on portfolio investment overseas and thereby to make

the changes that I am announcing today.

The specific decisions are:

. that from 20 July, 1981, there will no longer be any restriction on .

the amount that may be invested overseas in equities and in real ยท


. there will not, however, be any change in the amounts that may be

invested in any financial year in eligible fixed interest securities;

. it will still be necessary to obtain prior exchange control approval

from the Reserve Bank for all portfolio investment overseas.

It has been decided that these arrangements will be kept under review and

are, of course, without prejudice to considerations which may arise out

of any recommendations regarding exchange control that may be made by the

Committee of Inquiry into the Australian Financial System.


The previous policy on portfolio investment overseas in effect since

1 April 1980, permitted the following amounts and categories of

investments to be undertaken overseas by Australian residents in any

financial year;

. individuals could invest up to $40,000 in equities and real

estate, including $10,000 in eligible fixed interest investments;

. substantial private companies could invest up to $250,000 in

equities and real estate, including $100,000 in eligible fixed

interest investments; and

. public companies and institutions could invest up to $2.5 million

in equities and real estate, including $1 million in eligible fixed

interest investments.

Fixed interest investments which are eligible are those in marketable

fixed interest securities with not less than one year to run to maturity

at date of purchase and which are traded on a recognised securities market


Investment in banks, money markets and similar short-term deposits and

direct loans to non-residents are not eligible.

Canberra 19 July 1981