The Stock Market Winners and Losers From Australian Election
The Stock Market Winners and Losers From Australia's Election
(Bloomberg) -- Prime Minister Scott Morrison has secured a third term in office for his Liberal-National coalition with a surprise election victory, after Australian voters rejected the Labor opposition’s progressive policy agenda.
The shock result has seen Australian stocks respond by rising to their highest levels since December 2007, with gains in financial services and consumer-focused sectors leading the charge amid expectations of income tax cuts and now-dead Labor plans to scale back incentives for investors.
The S&P/ASX 200 finance index, which accounts for about one-third of the benchmark index weighting, rose as much as 5.9% and is set for its largest advance since March 2009.
“There’s relief and surprise from CEOs and investors,” said Chad Slater, chief investment officer at Morphic Asset Management. “It’s commonly viewed that the big end of town prefers to have a right-of-center government.”
Here are the stocks to watch:
Financial Services
The finance industry is still dealing with the aftermath of the Royal Commission into misconduct and analysts including Bloomberg Intelligence anticipated a Labor government would have gone faster and further than the coalition in implementing the proposals.
- “From a regulatory perspective, a very friendly government is maintained,” Whelan said. “The banks had a big weight lifted off them.”
- Stocks to watch: AMP +3.4%, IOOF +1.2%, Netwealth -1.3%, Platinum Asset +1%, ANZ Bank +6.7%, Commonwealth Bank +6.1%, National Australia Bank +7.5%, Westpac +8.3%
- NOTE: Big Banks Surge in Australia on Morrison’s Shock Election Win
Climate Change
Labor’s pledge to cut carbon emissions by 45% from 2005 levels by 2030 and enforce tougher caps on the biggest polluters would have incurred higher costs on the oil and gas industry and airlines. Wood Mackenzie Ltd. estimated, for instance, that the Chevron-operated Wheatstone LNG project in Western Australia, in which Woodside Petroleum Ltd. has a 13% stake, would incur additional costs of between $120 million and $150 million a year. The consultancy also said major coal producers would have been hit by the cost of offsetting emissions. On the flip side, the renewables industry will likely get less support from Morrison’s government.
- Coal miners will rally as the coalition is more friendly to the fossil fuel than Labor, said James Whelan, investment manager of VFS Group’s global macro fund.
- Stocks to watch: BHP -0.8%, Woodside -0.9%, Santos -1.1%, Qantas +2%, Infigen Energy -4.3%
Property
Developers may get a bounce with the threat to tax breaks for property investors now lifted. The coalition has no plans to change negative gearing, which allows landlords to claim the costs of owning a rental property, including mortgage interest. Morrison argued Labor’s plan to wind back the incentive would further undermine the housing market, which is in the grip of a downturn. The government is pledging support to some first-home buyers, meaning they will only have to save 5% of the purchase price as a deposit, instead of the 20% typically demanded by banks.
- Bloomberg Intelligence had said negative gearing changes may have weighed on investor mortgage demand and bank margins.
- Property shares will probably move because proposed changes to negative gearing and capital gains were “pretty significant, pretty dramatic changes to Australia’s fundamental tax system,” according to Mousina.
- The first home-buyer support may shrink the mortgage-insurance market by 10%-15%, JPMorgan analysts wrote in a May 13 note. The impact will be mitigated, however, as insurers won’t have to set aside as much capital.
- Stocks to watch: Stockland +2.7%, Lendlease +1.1%, Mirvac +1.7%, Domain +4.2%, REA Group +7.6%, QBE Insurance +1%
- NOTE: Australian Property Stocks Soar After Voters Spurn Labor Polices
Dividend Imputation
The system of franking credits, which ensures company profits aren’t double-taxed when paid out to shareholders as dividends, will remain intact. That will see continued investor demand for high-yielding dividend stocks, according to Geoff Wilson, chairman of Wilson Asset Management.
- Labor’s policy “created phenomenal uncertainty and that has now been removed,” Wilson said by phone. “The high yielding, fully-franked stocks -- money will start flowing back into them.”
- Stocks to watch: Fortescue +2.7%
Child Care
Childcare providers rallied on Labor’s plans to increase childcare subsidies for those on lower incomes, with families earning up to A$174,000 ($120,000) a year promised they would be able to claim a rebate. RBC Capital analyst Garry Sherriff wrote in a note last month the proposal was a net positive for listed operators as it was likely to boost demand for services.
- Stocks to watch: G8 Education -2.7%, Think Childcare -1.7%
Health Insurance
Private health insurers no longer have to contend with Labor’s plan to cap price increases at 2% for two years. Morgan Stanley analysts wrote in April that the measure would likely have weighed on the margins of insurers, but also impact private hospital operators because insurers would have taken a harder line in cost talks with hospitals.
- Stocks to watch: Medibank Private +11%, NIB Holdings +9.7%, Ramsay Health +5.4%
- NOTE: Medibank Leads Health Stock Surge in Wake of Morrison Victory
Tax Cuts
In its April budget, the coalition pledged a tax rebate of as much as A$1,080, which could prompt a gain in retail spending.
- Stocks to watch: JB Hi-Fi +2.6%, Harvey Norman +2%, Super Retail +2.8%
--With assistance from James Thornhill and Jackie Edwards.
To contact the reporters on this story: Tim Smith in Sydney at tsmith58@bloomberg.net;Matthew Burgess in Melbourne at mburgess46@bloomberg.net
To contact the editors responsible for this story: Edward Johnson at ejohnson28@bloomberg.net, ;Divya Balji at dbalji1@bloomberg.net, Teo Chian Wei
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