Monday, May 18 2015
Last night the Abbot government handed down their second budget. In contrast to their first, policymakers sacrificed ambitious savings in a bid to win back voters and as a result produced a softer budget. However while the budget only trims the deficit and delays fiscal repair, this is a good course to take for an Australian economic repair. Business not government generates wealth, creates jobs and grows the economy so we agree with measures taken by the government to stimulate business with a “have-a-go budget”. From a macro point of view, the overall budget is fairly bland with no real push or pull of the economy in either direction. However, if anything, with the intention of fiscal policy to do some of the work to stimulate the economy, it may place less pressure on the RBA to cut rates. Additionally consumer and business confidence should pick up as a result of a more measured budget, while measures to level the playing field on online purchased goods will also favour local companies. Focusing on our portfolio, we also note there are no real tail or headwinds, however we focus on a few key implications:
- Consumer stocks (JB Hi-Fi, Super Retail Group, Flight Centre Travel Group)—Budget aiming to stimulate economy and bring forward consumer demand. Instant write-off of capital investment under $20k for small business on any items with no limitation on use. There has also been an adjustment to FBT to abolish electronic devices used for work such as mobile phones, laptops and tablets.
- Infrastructure & Construction stocks (Lend Lease Group, DuluxGroup)—The government have outlined a one-off payment of $499m to WA and up to a $5b loan facility to northern Australia to construct infrastructure. This should create jobs and increase productivity.
- Employment stocks (Seek)—Policymakers are focusing on increasing the number of people looking for work. Increased family childcare benefits and encouraging employers to hire older workers should increase the participation rate.
- Healthcare stocks (Sonic Healthcare)—Backing down from last year’s GP co-payment should support high volumes and subsequent referrals. This should remove some of the regulatory concerns around some of our healthcare stocks.
In conclusion, a plain budget should be received well by the market with many participants ranking the need for growth and strong economy over reaching a surplus. Additionally by saving on pensions, the government was able to avoid taxes on superannuation which should bode well for equities. Last year confidence took a major tumble and the Consumer stocks suffered downgrades. The outlook appears much better and this is clearly being reflected in the market today with Consumer stocks bouncing.
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