Labor Federal Election Victory

As the votes continue to be counted and final results are determined in the 2022 Australian Federal Election, we thought it important to provide you with some brief insights as Australia enters a new era of political leadership.

What we know so far

• The Australian Labor Party (ALP) has won the 2022 Federal Election and appears all but certain to govern with a clear majority without the need for support from the Greens or teal independents.
  
  
• The ALP had a tight policy manifesto heading into the election with four areas that stand out:
  • More aggressive climate targets with the promise of billions of dollars for electricity grid upgrades and flow on into EV’s and hydrogen investments,
  • A ‘help to buy’ national shared equity scheme for housing for 10,000 new/existing home buyers,
  • Increase in the minimum wage to match inflation (~5.1%) and
  • Greater social spending- aged & child care as well as education
    
    
• Such policy initiatives will take time to impact the economy as the new Labor Government commences it legislative journey. As such, we don’t see the election result having much of an effect on financial markets as they are generally forward looking and will have already priced in these initiatives.

What we expect

1. The ALP will run higher budget deficits, and this is problematic in a rising interest rate and slowing economic growth environment, but we are yet to see if increased public spending can be directed towards more productive areas such as apprenticeships and training or how they balance energy security up with the need for energy transition.
   
   
2. Equity market weakness is being driven by ‘end of cycle pressures’ such as rising inflation & interest rates, declining liquidity and slowing economic growth. Neither Labor nor the Coalition can provide a reprieve from these forces or materially change the earnings or rates outlook.
   
   
3. A greater focus on climate change offers the potential to benefit clean energy sources and those corporates which are further through this transition. EV’s, hydrogen and the grid are clear winners.

Potential implications for your portfolio

Ultimately, bond yields, the Australian dollar (A$), and the equity market are being driven by global forces that the election result will not change. Bond yields and the equity market will not stabilise until inflation risks decline and/or central banks take a more dovish stance on the path for rates. Similarly, the A$ will not weaken materially due to the prospect of higher deficits if commodity prices remain elevated.

Finally, house prices are under threat from rising interest rates, and a lack of affordability and targeted policies offer selective, not universal, support. Australia is entering a new political dawn, but politics is likely to remain a secondary driver for markets.

Ongoing monitoring and action

We continue to monitor both the political and economic environment to ensure that investment portfolios maintain asset allocations focused on the achievement of clients' long-term goals.

While we know that political change can be disruptive, we believe that the transition of government will not have a significant impact on client portfolios. We will provide further updates if this view changes. If you have any questions or concerns about any of the content in this article, please contact your Financial Adviser to discuss them.