For weeks after the election, we didn’t know whether we were facing:
- a Liberal-National government with a paper thin majority in the lower house, and facing a hostile senate, or
- a Liberal-National minority government beholden to one or more independents – and a hostile senate, or
- a Labor minority government trying to keep a number of independents happy in both houses, or
- another election!
Now we know – the Coalition holds the slimmest of majorities in the lower house and huge cross-bench in the upper house.
Why would this bother investors? Firstly, investors hate uncertainty, because uncertainty means risk. Secondly, it potentially delays and compromises the government’s delivery of promised economic stimulus. Thirdly, it may cause businesses to delay and/or reconsider investments, and consumers to delay discretionary purchases.
But on the Monday immediately after the election non-result, the benchmark ASX 200 index of Australia’s largest listed companies traded (slightly) higher.
In other words, the market reaction was essentially,
“What election? The only vote we’re really worried about was the one in the UK.”
So what’s going on? A quick recap of the big market swings during the year to date tells us the answer:
- The ASX 200 traded steadily lower from the start of the year to a mid February low below 4800, as oil prices dropped to around $30 (in line with weak commodity prices generally).
- As commodities recovered and oil traded above $50 for the first time in six months, the ASX 200 pushed through 5400.
- In the lead-up to Brexit, negative polls (in the UK, about the UK referendum) drove the market down to 5146 before more positive polling triggered a bounce which was then reversed when the “leave” vote won the day.
The message is clear. “The market” doesn’t really think it matters who forms government in Australia, or how secure their hold is on power. The world economy (and thereby commodity prices) swamps the relatively small differences between Australia’s major parties.
What are your thoughts?
Does Canberra really matter to Australia’s economy? Or does the Reserve Bank really run the show (to the extent anyone does)? Is there too little difference between the major parties, or is that a good thing?
Join the conversation — leave a comment below and let us know what you’re thoughts are.