Federal Election

Tuesday, August 24 2010

Market implications from the undecided Federal Election

The Australian public has voted with no clear winner decided, with neither the Labor Party nor the Coalition winning enough votes to govern in its own right. Both sides will attempt to win the support of non-aligned MPs, in a process that could take several days or even weeks. We take a look at the sectors and stocks most exposed under different Governments.

 Change in Government: A Coalition Victory

WINNERS

  • Resources – BHP, Rio Tinto and Fortescue Metals Group. The Coalition has made it clear that if they are elected they will scrap the mining tax.
  • Healthcare – Sonic Healthcare and Primary Healthcare. The Coalition’s stated healthcare policies would be more accommodating to private healthcare providers.
  • Banks – CBA, ANZ, NAB, WBC. A Coalition Government is a good outcome for the banks given the independents rather than the Greens are likely to hold balance of power. Under the Greens the risk of adverse outcomes for the banks are higher.

LOSERS

  • Telecommunications – Telstra. The Coalition plans to scrap the National Broadband Network (NBN) which creates a greater level of uncertainty for TLS.

Incumbent: Labour return

WINNERS

  • Telecommunications – Telstra. Labor has a comprehensive NBN plan particularly for rural areas.

LOSERS

  • Resources – BHP, Rio Tinto and Fortescue Metals Group. We believe the mining tax has largely been factored into the share prices.
  • Gaming – Tabcorp, Tattersals, Aristocrat. Gaming regulation could be revisited. The Greens advocate harm minimization measures such as reductions in maximum bet limits, which could affect the sector.
  • Carbon intensive industries like coal and steel given that an Emissions Trading Scheme is more likely.

The prospect of Australia ending up with a hung Parliament is a distinct possibility with no party holding the majority of votes. While Australia hasn’t had a hung parliament at the federal level since 1940, minority governments have operated successfully in Canada, India, New Zealand, the United Kingdom, Germany, and several other European countries. Clearly economic reform will be more challenging than it has been in the past.

 

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