Markets driven by greater forces

The kick-up in the sharemarket on Monday has been mischaracterised as a post-election boost and an endorsement of the Coalition.
By · 10 Sep 2013
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By ·
10 Sep 2013
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The kick-up in the sharemarket on Monday has been mischaracterised as a post-election boost and an endorsement of the Coalition.

In most respects the market behaved pretty normally, trading on the back of economic data (in this case positive) out of China with a bit of US employment thrown in.

The Coalition's resounding victory in the House of Representatives over the weekend provided much-needed certainty to Australian politics but this result was already factored into the sharemarket.

This might negate the post-election market boost that traditionally follows a change of government.

The shambolic result in the Senate took some of the gloss off the win in the lower house. But concerns that Abbott's promises to axe the carbon and mining taxes have been stymied by the grab-bag of special-interest parties that hold the balance of power in the upper house are probably overplayed.

It's probably fair to assume that the election of Clive Palmer's two candidates, plus the Liberal Democratic vet, the petrol head from Victoria, the Sports Party winner and the Australia Family First candidate from South Australia won't stand in the way of Abbott's climate/mining tax agenda.

But nor is the abolition of either of these taxes going to have any discernible impact on the Australian economy, business profits or consumer confidence. The carbon tax, while demonised by Abbott, was far less of an issue for the electorate than feared. Some consumers and all emitters were compensated. Both have spent the money and don't have to give it back.

It has been a bigger problem for small to medium-sized businesses that have seem their energy bills increase because some have been unable to offset the impost.

At the big end of town there are a few notable winners, with Qantas and Virgin standouts. Others that should join that list according to UBS are Boral, CSR, Adelaide Brighton, AGL and Origin Energy.

Others, such as BHP Billiton, have declared the carbon tax a cost but have not specified how much.

Abolishing the MRRT may (and the emphasis has to be on may) be a small net positive for the likes of BHP Billiton, Rio Tinto and Fortescue Metals. But the tax has collected limited revenue and is forecast to collect even less on commodity forecasts, according to UBS.

The Coalition's chances of reinvigorating the economy have little to do with these high-profile issues.

As far as the economy is concerned (which feeds into markets) the positive aspect of electing a government with a clear majority is confidence. But this is a delicate and potentially medium-term issue.

The fact remains that business investment in the non-resources economy is nowhere near the level that will compensate for the downturn in mining investment. And the Coalition plans to spend on infrastructure don't come close to offsetting the private industry hole.

Tony Abbott has outlined some medium-term spending cuts to repair the economy's budget but there is insufficient incentive for big and small companies to invest.

Certainty is a key element for business, as is the Coalition's promise to cut layers of unnecessary regulation, but is it enough to kick investment into hyper-drive?

If there is to be a positive consumer response it will probably not filter through until next year. There will be no immediate impact on the family budget. But the macro settings in the short term remain largely unchanged.

Fitch Ratings sums this up: "The Liberal-National Coalition victory ... is unlikely to shift the government's near-term fiscal position or its medium-term trajectory ...

"We expect the new Coalition government will remain on track to reaching a modest budget surplus by 2017, broadly in line with the road map set by [Labor].

"This reflects the absence of deep ideological divides between the two main parties on core aspects of fiscal management, notwithstanding political differences on a few taxation policies. Fiscal policy over the past decade has restrained the level of government debt - which at 32 per cent of GDP is lower than at most of its rated peers."

Factors outside an election outcome remain far more significant to the economy than the weekend's electoral wash-up .
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