Australian Budget Has Few Stock Losers Ahead of 2019 Election

(Bloomberg) -- With a federal election required in the next 12 months, the Australian government has ensured the equities market is unlikely to feel much heat from unfavorable decisions.

Tax cuts for lower income workers, a continuation of planned infrastructure spending, a boost to tourism funding and focus on aged care are all likely to have a mildly positive impact on equities. The government has also forecast a return to surplus of A$2.2 billion in fiscal year 2020, 12 months earlier than scheduled.

“The budget is certainly focused on winning an election,” Ryan Felsman, senior economist at CommSec, said last night in a video response to the budget. “The proposed personal tax cuts announced are quite modest, but certainly we expect them to provide a bit of a boost as far as household consumption is concerned. We don’t see too many losers from tonight’s budget.”

The benchmark S&P/ASX 200 Index is set to advance a sixth consecutive week, its longest winning steak since May 2016, amid a recovery in bank stocks, ongoing strength in commodity prices and optimism about the Australian market.

Winners

  • Consumer discretionary, staples including JB Hi-Fi, Harvey Norman, Super Retail, Woolworths, Wesfarmers, Domino’s Pizza, Retail Food Group
    • Tax cuts may be small, but given little income growth they may prompt an increase in consumer spending on both the discretionary and staple sides
  • Tourism stocks including Qantas, Virgin Australia, Crown Resorts, Star Entertainment
    • Govt plans to increase funding to Tourism Australia and offer additional spending to move visitors beyond the major cities may boost airlines as well as businesses like Crown and Star
  • Infrastructure firms including Adelaide Brighton, Cimic, CSR, Lend Lease
    • With an extra A$25b allocated for road, rail and public transport spending, there is likely some support for the firms that provide the materials and know-how for those projects
  • Energy firms including Woodside, Santos
    • Concerns in media yesterday that the PRRT would be altered didn’t eventuate; PRRT revenue seen rising to A$1.35 billion in 2019 from A$981m in 2017

Losers

  • Health stocks including Summerset, Estia Health, Japara
    • Government to provide A$1.4b over four years for people to stay in their homes rather than in nursing homes, retirement villages, allowing ~74,000 people to access home care packages by 2022
    • Also extending plan to allow people to borrow against equity in home
    • May mean people will try and stay in their homes longer, rather than enter retirement services
  • Insurers including AMP, Suncorp, Westpac
    • Government has introduced new rules meaning those under 25 and with low pension balances don’t have to have life insurance as a component of their superannuation
    • Pension operators including Challenger are supportive of the proposal

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