Will The Election Be Good For Stocks?
By Peter Switzer, Switzer Super Report
Leaving aside your political leanings, the crucial question for a newsletter like this is ? what election outcome is best for your super fund? I will narrow it down to the stock market effect of a Rudd or Abbott victory, leaving out the alternative inflation consequences of either government, and therefore the interest rate effect.
A look back
Let me start with what I finished with in my Saturday morning contribution: "Big hope for the week ? the election called and maybe, just maybe, we could get some positive vibes happening before the silly season, which might mean we could see an economic kick up in the first half of 2014. A late election will mean a longer time is needed for the economic recovery to show up."
So PM Rudd has done the right thing for the economy and, ultimately, stocks!
But now let me remind you of how the UK's Financial Times saw our Economic Statement on Friday: "Australia - Canberra just cut its GDP forecast, added two thirds to its budget deficit forecast and put a levy on the banks. The Aussie dollar meanwhile is at three-year lows and falling. Time to get out of Oz?"
This "time to get out of Oz?" could be taken from two points of view ? get out of the dollar or get out of everything Aussie ? but the latter is senseless as a low dollar is actually good for a whole pile of companies.
Also the high dollar, along with the stupidity of the RBA's interest rate policy as the mining boom petered out to something less than a boom, along with the Gillard Government's fixation with a budget surplus, actually has added to the negativity of a less robust Chinese customer for our exports to weaken our overall economy.
Dollar dazzler
Therefore, a lower dollar will be a big help for the economy and many stocks.
But this should not be news to you, as I have been talking about this for nearly two years. No use whining about spilt milk, so let's deal with what might happen after 33 sleeps and the next PM is selected by the voters of this great country!
Let's focus on an Abbott victory first. Bank shares would be better served, unless Tony signs up for Labor's bank bailout levy. And with talk about slugs on insurance companies, you'd expect diversified financials to be stronger after a Coalition-win.
McMillan Shakespeare ((MMS)) would also spike. It is currently a $9.00 stock but Roger Montgomery values it at $14. That's a punt for the brave who believe TattsBet, which has the Coalition as $1.28 favourite and Labor as the $3.60 outsider!
On the other hand, if you can believe the FT view, then a Rudd victory should weaken the dollar, while an Abbott victory could shore it up a tad. So overseas holidaymakers will find the exercise more expensive with a Rudd Government but the likes of education business like Navitas ((NVT)), and low cost miners, such as BHP Billiton ((BHP)) and Rio Tinto ((RIO)), could see their export earnings more valuable in Aussie dollar terms.
The likes of QBE Insurance ((QBE)), ResMed ((RMD)), CSL ((CSL)) and even Macquarie Group ((MQG)), which earn a lot of their income overseas, could be beneficiaries of an even lower dollar.
A Rudd win could lead to an exit of some money from foreign investors but the new and improved PM has tried to be more business-supportive, for example, by KO'ing the carbon tax ? but there would still be some Labor Party suspicions from six years of the Rudd-Gillard-Rudd musical chairs show.
The best outcome
If I put my dispassionate economist's hat on, I would argue that the best long-term outcome for the economy and stocks would be a Coalition win. It would lead to foreign investment inflows and the dollar would be more supported, but I suspect we'd see business confidence rebound and then a business investment comeback.
This will help growth in 2014 and would coincide with a stronger China ? its non-manufacturing or services purchasing managers' index (PMI) picked up to 54.1 in July from June's 53.9. Anything over 50 represents an expanding sector and I think news on China will improve over the rest of this year.
One last point for market investors ? I have been trying to work out why our stock market is still 34% below its all-time high of 6828.7 reached on 2 November, while the Yanks are in all-time high territory?
There are many answers, ranging from the RBA's rate policy, the once low US dollar and the once high Aussie dollar, and the China slowdown. You'd also have to throw in government policy over the past few years in particular, especially when you think back on the hung parliament, a carbon tax, a mining tax, a budget surplus goal as the economy was slowing and the fact that the NAB business confidence readings have spent so much time in negative territory.
Throw in the unbelievably weak retail figures and the low level of consumer confidence and anyone who thinks company profits are important for share prices would have to be thinking a political change is a good as a holiday, if only for money purposes!
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
Content included in this article is not by association necessarily the view of FNArena (see our disclaimer).
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