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The Stock Market Winners and Losers From Australia's Election

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    The Stock Market Winners and Losers From Australia's Election

    and
    May 18, 2019, 9:48 PM EDT
    • Morrison’s Conservatives cling to office on economic record
    • Builders, insurers, miners may rally as voters reject Labor
    Scott Morrison with his family during an election night event in Sydney on May 18.
    Scott Morrison with his family during an election night event in Sydney on May 18. Photographer: David Gray/Bloomberg

    Prime Minister Scott Morrison has secured a third term in office for his Liberal-National coalition with a surprise election victory, after Australian voters rejected the Labor opposition’s progressive policy agenda.



    The shock result has wide-ranging implications for a slew of listed companies, from banks to builders and resources firms, with Labor’s plans to scale back tax incentives for investors and take tougher action on climate change now dead.




    “Markets hate uncertainty and now you’ve just ripped all that uncertainty out of the market,” said James Whelan, investment manager of VFS Group’s global macro fund. “Buy everything.”



    Here are the stocks to watch:



    Climate Change

    Labor’s pledge to cut carbon emissions by 45% from 2005 levels by 2030 and enforce tougher caps on the biggest polluters would have incurred higher costs on the oil and gas industry and airlines. Wood Mackenzie Ltd. estimated, for instance, that the Chevron-operated Wheatstone LNG project in Western Australia, in which Woodside Petroleum Ltd. has a 13% stake, would incur additional costs of between $120 million and $150 million a year. The consultancy also said major coal producers would have been hit by the cost of offsetting their emissions. On the flip side, the renewables industry will likely get less support from Morrison’s government.

    • Coal miners will rally as the coalition is more friendly to the fossil fuel than Labor, said Whelan.
    • Stocks affected: BHP, Woodside, Santos, Qantas, Virgin Australia, Infigen Energy

    Property

    Developers may get a bounce with the threat to tax breaks for property investors now lifted. The coalition has no plans to change negative gearing, which allows landlords to claim the costs of owning a rental property, including mortgage interest. Morrison argued Labor’s plan to wind back the incentive would further undermine the housing market, which is in the grip of a downturn. The government is pledging support to some first-home buyers, meaning they will only have to save 5% of the purchase price as a deposit, instead of the 20% typically demanded by banks.

    • Bloomberg Intelligence had said negative gearing changes may have weighed on investor mortgage demand and bank margins.
    • The first home-buyer support may shrink the mortgage-insurance market by 10%-15%, JPMorgan analysts wrote in a May 13 note. The impact will be mitigated, however, as insurers won’t have to set aside as much capital.
    • Stocks to watch: Stockland, Lendlease, Mirvac, Domain, REA Group, QBE Insurance

    Dividend Imputation

    The system of franking credits, which ensures company profits aren’t double-taxed when paid out to shareholders as dividends, will remain intact. That will see continued investor demand for high-yielding dividend stocks, according to Geoff Wilson, chairman of Wilson Asset Management.

    Frankly My Dear

    Resources, banks have largest portion of available franking credits

    Source: Company filings, data compiled by Bloomberg

    Note: Available franking credits based on latest annual report

    • Labor’s policy “created phenomenal uncertainty and that has now been removed,” Wilson said by phone. “The high yielding, fully-franked stocks -- money will start flowing back into them.”
    • Stocks to watch: BHP, Rio Tinto, Fortescue, Commonwealth Bank, Westpac


    Child Care

    Childcare providers rallied on Labor’s plans to increase childcare subsidiesfor those on lower incomes, with families earning up to A$174,000 ($120,000) a year promised they would be able to claim a rebate. RBC Capital analyst Garry Sherriff wrote in a note last month the proposal was a net positive for listed operators as it was likely to boost demand for services.

    • Stocks to watch: G8 Education, Think Childcare


    Health Insurance

    Private health insurers no longer have to contend with Labor’s plan to capprice increases at 2% for two years. Morgan Stanley analysts wrote in April that the measure would likely have weighed on the margins of insurers, but also impact private hospital operators as insurers would have taken a harder line in cost talks with hospitals.

    Not the Peak of Health

    Rate of Australia's health insurance premium rises are slowing but still outpace inflation

    Source: Australian Bureau of Statistics, Department of Health

    Note: 2019 CPI is y/y increase in 1Q

    • Stocks to watch: Medibank Private, NIB Holdings, Healthscope, Ramsay Health

    Tax Cuts

    In its April budget, the coalition pledged a tax rebate of as much as A$1,080, which could prompt a rise in retail spending.

    • Stocks to watch: JB Hi-Fi, Harvey Norman, Super Retail, Myer

    — With assistance by James Thornhill

 
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