Out of the teal world and into the real world

Saturday’s federal election result shouldn’t have too much impact, if any, on markets this week.

The biggest beneficiary will almost certainly be the environment getting a higher ranking in a key policies, which in turn will see the push into renewables accelerate.

Batteries, EVs, charging networks and associated infrastructure will become investables, as will their recycling and marketing.

That will mean more focus on exploration, processing and marketing, more investment in more mines, more plants while coal mining will be slowly pushed to one side.

Shares in companies like Whitehaven, New Hope and Stanmore Resources will come under pressure.

Investors will also have questions about Santos, Woodside Energy (with BHP Petroleum onboard), Beach Energy and small oil and gas players, all of which will have to work harder to justify their investments and their planning.

Fortescue Metals executive chair Andrew Forrest welcomed the ALP’s win on Sunday – with its rapidly evolving green businesses, FMG will be one company investors will see benefitting from the election result – and the shape of the new parliament.

An expected lift in its key interest rate by the Reserve Bank of NZ (see diary) will focus attention back onto our inflation and cost of living issues, while business will face certain wage rises for lowly paid people.

But the wage rises will apply to the lower paid workers in the economy and will still end up less than inflation.

First quarter economic growth is out Wednesday week and the Reserve Bank’s June monetary policy meeting a fortnight tomorrow will also consider the impact, if any of a change in government.

The new Treasurer won’t be a major factor in the early months of the new government but the ALP did say there would be a post-election budget, which will be important for outlining policies on spending, deficit and taxes – and provide a sort of legislative map.

Labor policies including more spending on childcare and aged care offset by various savings imply slightly more net spending and slightly bigger deficits (of around $US1.85 billion or 0.1% of GDP a year, according to AMP chief economist, Shane Oliver.

Labor’s “Help to Buy” scheme for new home buyers will, like all demand side housing schemes, simply add to upwards pressure on home prices, but with only 10,000 places a year the impact is likely to be marginal and it won’t head off a slump in property prices over the next year in response to rising interest rates, according to Dr Oliver.

He says Labor policies don’t point to a real fix to housing affordability, although its promises for 30,000 social homes & a National Housing Supply Council may help a bit.

If timed right, an ambitious social housing program in key states like NSW, Victoria, Queensland and WA will help fill the gap from the continuing weakness in dwelling investment expected over the next one to two years.

Dr Oliver believes the major concern is that Labor, the minorities and independents are not prepared for the significant budget repair and the sort of economic reform agenda that will “likely be necessary if inflation and interest rates remain higher for longer.”

“But then again neither was the Coalition. Governing in a world of higher inflation and interest rates will be the main challenge for the new Government.”

The same can be said for Australian business, unions and consumers.

“The main risk for markets will come if Labor has to rely on the Greens to form Government and they push Labor down a far less business-friendly path than its election platform suggests, such as implementation of the Greens’ proposed super profits tax on business.

“However, there will now be plenty of “teal” independents in Parliament whose policies on climate, integrity and health align more closely with Labor and for whom Labor should be able to gain support from. This could result in a bit of uncertainty for the share market and the $A until its resolved,” Dr Oliver wrote on Sunday.

He did point out that after the 2010 election in which neither of the major parties secured a majority it took 17 days for the Gillard minority Government to be formed with shares initially falling 2.5% over the first three trading days but rising 3.3% through the negotiation period as a whole.

According to a note from ComSec in the 11 elections held since 1990, the All Ordinaries Index climbed by an average of 1.2% in the 15 trading days after the poll date.

So perhaps a small bounce until the state of the parties in parliament is determined.

Ends