Markets: Taking stock of the election

If stock markets discount future events then the September 7 Federal election has well and truly been taken into account. More than six months have passed since Julia Gillard announced the September 14 date and a week earlier will make little difference to investors. The S&P/ASX200 Index reached a high this year on May 14 of 5220.987 and a low of 4655.96 on June 25. On Friday it closed at 5116.76, up 9.9 per cent since June 25. On June 26 Rudd reclaimed the Lodge. The index has risen 4.5 per cent since January 30 and 10 per cent since the beginning of the year, according to Bloomberg data.

If politics has played any factor it has been in the realm of hard-to-define sentiment. Fund managers have been saying for months that chief executives and their boards have been reluctant to commit to any additional spending throughout much of this year. A limp domestic economy hasn’t helped. Neither has a “global economy [that] is just so volatile,” as Rudd put it to reporters yesterday. He said the “decade-long mining boom” is over and the “economy must be strong in order to do everything else”.

Enter the election’s frontrunner. Tony Abbott declared he would abolish the carbon and mining taxes, cut company tax and “get regulation down”. The Liberal Party leader envisages $1 billion a year in “red tape cost reductions”. “Government will be smaller,” says Abbott. That is music to the ears of companies and many investors who want government to get the hell out of the way and let market forces decide things. Abbott has pledged not to lead a minority government, the biggest gripe CEOs have with the last parliament. Corporate chieftains want one political party clearly in charge, say fund managers.

But the market is notoriously fickle. Investors and CEOs can seemingly work well with both sides of politics because they have to. The seismic decision by the Labor Party to dump Gillard for Rudd barely registered on the ASX. What is preoccupying the stock market are company earnings this year and next. As the election campaign ramps up so will corporate reporting. Notwithstanding scrutiny of the 2013 bottom line, investors will want to hear what companies have to say about the year ahead. That, and economic data from the US and China as well as domestic and international monetary policy, is what will drive the share market.