FYI | May 22 2019
By Peter Switzer, Switzer Super Report
This election result has to be good for stocks
Saturday’s election result was one for the true believers in capitalism and it seems a majority of Aussies have grasped what Bill Clinton made famous, when he campaigned on the slogan: “It’s the economy, stupid.”
Today’s story, that this election result will be good for stocks, has been beaten to the punch by a stock market that instantly added 6% to CBA, 100 points on the All Ords and so on. What the win means for the overall market going forward and what sectors are best and worst placed makes sense right now.
When stocks were crushed between September and December 22 last year, the threats were:
- The Fed and interest rates rises. But now CNBC says that 74% of the professionals who speculate on rates are “highly confident of a cut in December”! (I think there won’t be any cuts but, as you can see, rate rises are out of the picture)
- Trump and the trade war. This is still expected to be averted, though it’s taking longer than was hoped. (I think we’ll see a deal sooner rather than later and this will bring another leg up for stocks)
- APRA and the Royal Commission. These two things turned off the lending taps locally and house prices fell substantially. Note, the economic growth for the last six months of the year was 0.3% in the September quarter and 0.2% in the December quarter, which adds up to 0.5%. And when you annualize that (as the RBA does), it gives you a low 1% growth rate! No wonder stocks fell!
- The black cloud of the election was looming and this hurt both business and consumer confidence. (The win for the Coalition and the eradication of Labor’s more controversial policies for investors and business give oxygen to fuel another leg up for stocks)
The election should act to settle down nervous investors and businesses, which should help both economic growth and the stock market. And if a Trump trade deal can surface, I think stocks can keep heading north, albeit with a couple of pullbacks that should be buying opportunities.
I had breakfast this morning with a New York-based hedge fund manager mate (who hasn’t made as much money as he would’ve liked because Donald has kept stocks going higher). He says even his firm isn’t factoring a US recession over 2019 and 2020. If he’s right, that’s good for us who are long stocks.
On the election and what sectors/stocks looks good or bad, let me give you a quick summary.
On the positive side, the lost threat to franking credits has to help banks, hybrids and Listed Investment Companies. Income-payers are advantaged by SMSF retirees being free to pocket tax refunds.
From an industry perspective, health insurers such as Medibank and NIB should have a better bottom line future. Ramsay also should do better under the Coalition. Meanwhile, energy businesses such as AGL and Origin should have a brighter future.
To the negatives, and unfranked stocks that were seen as fall back alternatives to franked dividend-paying stocks could lose some friends, such as REITS and those companies that make most of their profit overseas. Transurban and Sydney Airport could lose a few friends. Telstra might have done better under Labor, as it was thought it would write off the NBN deal that’s squeezing telco’s profits.
A childcare business such as G8 had more to expect out of Labor and the market had anticipated that. The stock is down 3% at $2.87.
Medical businesses in the diagnostic imagery space such as Sonic and Healius were expected to be beneficiaries of a Labor win. The stocks are down 1% and 2% respectively as I write.
Overall, the election result is better for certainty and stock markets prefer certainty. The shock win will also be a plus for foreign investors who can own over half of our stock market!
The chart below shows how much clout foreign investors have:
I don’t like to make presumptions about how my subscribers vote but I have to say that Saturday’s election result should be better for our wealth-building going forward.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
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