Bring on the election confidence bump

Business and consumer confidence is set for a bounce post-election, providing a majority government is selected.

History tells us the share market responds positively to election results, regardless of the winning party. Of 11 elections in the past 30 years, the All Ordinaries index has gained an average of 1.3 per cent in the month following the result.

There is no reason for this not to hold true after the vote on Saturday, providing talk about military action against Syria pacifies.

Sportsbet have the coalition as overwhelming favourites at $1.02 for the win. So September is shaping up to be a good month for stocks.

A minority government for the past three years is not at the root of Australia’s economic struggles, but it has undoubtedly fed the beast. Considering the pronounced dive in business and consumer confidence levels, any increase in certainty and clarity over government policy could work wonders. Retailers, manufacturing and construction are front and centre to enjoy the benefits of this.
The graph below shows the retail sector has underperformed the broader ASX 200 by close to 30 per cent over the past three years. A convincing victory should trigger a magnified response in consumer confidence, putting retailers on better footing.

Graph for Bring on the election confidence bump

With GDP figures beating estimates and retail sales adding 0.1 per cent in July, consumer confidence shows early signs of bubbling. A change in government could see deferred and cancelled mining projects come on board, potentially turning around the fortunes of a sector which has flagged a tough reporting year ahead.

A generic political party line will tell you we need a new government committed to economic reform, but all the share market really needs is confidence there will be no irrational proposed taxes and policies. And it wouldn’t hurt to revive our attractiveness to foreign investors.

McMillan Shakespeare investors have already priced in a coalition victory, with the stock gaining 64 per cent since July lows reached after Labor’s announcement to changes on Fringe Benefit Tax. This won't be the norm but pockets of share price strength in a similar vein would be welcomed.

A change in government may not immediately transform the underlying fundamentals, but an about-face in confidence will do wonders for the sharemarket.