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Feature Article - Measuring Portfolio Investment
geographic distribution of non-resident creditors also becomes known.
Concept of portfolio investment
6 The compilation and presentation of ABS international investment position statistics conform with the prevailing international statistical standard, namely the IMF’s Balance of Payments Manual, Fifth Edition (BPM5). These statistics are classified in several ways with the primary classification based on type of investment. There are four broad categories—direct investment, portfolio investment, other investment and reserve assets.
7 Direct investment is a category of international investment that reflects the objective of an investor in one economy (the direct investor) obtaining a significant on-going interest in an enterprise resident in another economy (the direct investment
enterprise). The significant on-going interest implies a degree of influence by the direct investor in the management of the direct investment enterprise. In BPM5, evidence of this significant interest is defined as ownership of 10% or more of the equity of a direct investment enterprise. Portfolio investment is cross-border investment in equity and debt securities (other than direct investment). Reserve assets are those financial instruments available to and controlled by the Reserve Bank of Australia for balance of payments management purposes, such as financing imbalances and managing exchange rates. Other investment is a residual group that comprises many different kinds of investments.
8 Within these categories further classification levels occur based upon factors relating to general analytical usefulness. For example for portfolio investment, the type of instrument is the primary classification (i.e. equity and debt securities). Corporate equities include company shares, investment fund units, and documents denoting ownership of equity (for example, American Depository Receipts). Debt securities are broken down into bonds and notes, money market instruments, and financial derivatives. Bonds include marketable bonds, debentures, and notes that have an original contractual maturity of more than one year. Long-term negotiable certificates of deposit are also treated as bonds.
9 The focus of the CPIS was on the equity securities and the long term debt securities (i.e. bonds and notes) classified to portfolio investment.
10 To assist countries with limited experience in the collection of portfolio investment data, the IMF prepared a reference document, Coordinated Portfolio Investment Survey: Survey Guide, which was released in August 1996. The IMF noted that surveys could primarily target end-investors, custodians (that is, financial institutions that administer or manage non-resident securities on behalf of residents) or a combination of both. In addition, the IMF noted that data could be collected either on an aggregated or on a security-by-security basis. The former approach, relies on the survey respondents to aggregate, allocate and value all of their international portfolio investment. By contrast, in the latter approach, respondents are asked for details of the quantity and other information about each security held, while data on the market value of each of these securities could be determined from a suitable commercial database which prices securities. Although the estimates obtained through either approach are conceptually the same, collecting data on a security-by-security basis has the potential of providing more information on, for instance, currency attribution, yields on securities, etc.
11 Since Australia already collects much of the relevant data required through the quarterly Survey of International Investment (SII) from end-investors on an aggregate basis, there was only limited additional information to obtain.
12 However, to improve the quality of the geographical detail of portfolio investment assets that were to be obtained from the December quarter 1997 SII, the existing sample survey was supplemented by additional resident enterprises that were known to have relevant portfolio investment activity. As a consequence, the totals for portfolio investment in foreign equity and long term debt securities obtained from the CPIS are slightly different from the corresponding estimates obtained from the regular quarterly survey, where a coverage estimate is made for the small contributors that are not included in that regular survey.
13 In addition, during the December quarter 1997 survey, respondents were urged to take particular care in determining the country attribution of securities investments and to identify the residence of the issuer rather than report the residence of the non-resident fund manager which has been occurring in past reporting in the SII. As a result, the country data obtained are of a high quality and are more reliable than similar data from previous surveys.
14 CPIS data requirements are consistent with the SII in all aspects except for the treatment of securities lending and repurchase agreements. The SII treats securities exchanged under these agreements as having changed ownership while the CPIS does not. For this reason, three supplementary questions were added to the December quarter 1997 SII to separately identify the impact of securities lending and repurchase agreements as at the end of the quarter.
Results of the survey
15 Table F1.1 shows that, at 31 December 1997, the level of Australian portfolio investment abroad, as measured through the CPIS, stood at $50,360 million for equity securities and $11,413 million for long term debt securities. Australian residents' investment in foreign equity securities was dominated by investment of $21,893 million (or 43%) in US equities. Other significant holdings of equity securities were in the UK, $7,783 million (15%); countries in the European Union (apart from the UK), $8,296 million (16%); and Japan, $5,386 million (11%). Australia’s investment abroad in the form of long term debt securities was also heavily focused in the USA ($5,627 million or 49%), while Germany ($1,192 million) and the UK ($1,135 million) each accounted for a further 10%.
16 Due to the reasons outlined in paragraphs 12–14 above, the data shown for total equity securities and total long term debt securities in Table F1.1, differ slightly from the corresponding data shown in Table 32 on page 60 of this publication.
17 The IMF will act as a central clearing house for the compilation of aggregate data from those countries which have undertaken the CPIS and will supplement it with additional data in respect of central bank holdings. The IMF will provide the resultant data to participating countries as well as non-participating countries. Confidentiality constraints will be observed. By exchanging comparable statistics, countries should be able to improve their estimates of non-resident holdings of their portfolio investment liabilities as well as associated capital flows and investment income data.
18 This international project is recognised as an important initial step in being able to understand and identify gaps in statistical collections and methodologies for measuring portfolio investment. It is likely that the IMF will consider recommending that an international joint project such as this will be repeated in the future.
19 For further information on the Coordinated Portfolio Investment Survey, contact Betty Gruber, Director of International Investment Section, on (02) 6252 5601 or Fax (02) 6252 6164.
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