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The Australian Labor Party achieved a decisive victory in the recent federal election, surprising many who had forecasted a potential minority government. This clear mandate is expected to bolster investor confidence, as markets are generally more favourable towards the stability and policy consistency a majority government provides, particularly amid ongoing global economic uncertainties.
Positive Implications for Equity Markets
Analysts at UBS are optimistic that Labor’s strong position will enable ongoing government spending and population growth to positively influence equity markets. Fiscal policy is anticipated to remain supportive, with deficits predicted to be 5.4% of GDP in 2024-25 and 4.5% in 2025-26. With annual population growth averaging about 2%, primarily driven by steady visa issuance, this demographic trend will likely act as a support for economic expansion, despite plans to manage immigration rates.
Sector-Specific Benefits
The election outcome is expected to have targeted but modest effects on specific companies:
- Childcare: Labor’s emphasis on affordable childcare stands to benefit G8 Education and Arena REIT.
- Housing: Policies related to housing are likely to provide some advantage to homebuilders like Mirvac and Stockland, although these initiatives are akin to those proposed by the previous Coalition government.
- Education: Concerns regarding a potential reduction in student visa numbers, which impacted IDP Education, have now subsided.
- Automotive and Construction: Firms such as Eagers Automotive, Brickworks, REA Group, and Ventia, which had anticipated slowdowns due to election-related uncertainty, may now experience a boost in activity.
Nevertheless, planned increases in taxes on pension incomes may induce slight changes in savings strategies.
Market Outlook: A Stable Yet Cautious Path
Historically, Australian equities have performed robustly regardless of the political party in power. Data indicates that the S&P/ASX 200 achieved average annual returns of 11.9% under the Liberal Party, compared to 6.1% under Labor. First-term Labor governments typically bring strong immediate gains for Australian stocks, whereas second-term administrations have been associated with declines.
Post-election, the consumer discretionary sector often outperforms, likely due to heightened consumer confidence and spending driven by a clear policy direction and economic stability.
However, the trajectory of the ASX 200 will be heavily influenced by international trade dynamics, especially US tariff strategies, and the Reserve Bank of Australia’s ability to stimulate consumer spending through potential rate cuts in 2025. Reflecting a prudent outlook, UBS has revised its year-end ASX 200 target from 8,850 down to 8,150, taking into account global uncertainties and possible earnings downgrades.
Strategic Recommendations
UBS advocates for investment in sectors such as insurance, technology, media, and telecommunications (TMT) due to their stable earnings, while suggesting caution in energy and banking sectors, which may face slower profit growth.
In conclusion, while Labor’s substantial victory establishes a favourable environment for Australian markets by alleviating political uncertainties, global challenges remain. The election result fosters a cautiously optimistic outlook for equities moving into 2025.
