Since the budget was delivered on Tuesday 2 April, the Australian share market is down 0.5%. All sectors have traded lower except for the materials sector. So is this an indication of pessimism from voters or simply normal market gyrations?
Firstly, elections have seen greater unpredictability in the last few years. From Brexit to Trump, pollsters have struggled to predict outcomes. Post-election, one of the most powerful stimulants has been tax cuts. This has helped propel the US stock market go to record highs.
So, what does the budget mean for Australian shares and the share market?
The proposals in the 2019 budget haven’t yet passed legislation and may differ if they become law. Tax cuts are a mild positive for consumer companies. However, most of this is not until 2022-2023, which means investors will likely discount this news.
Domestic healthcare should benefit from the $1.1 billion rise in primary care funding and a $309 million boost to imaging. Diagnostic imaging companies such as Capital Health Ltd (CAJ), Integral Diagnostics Ltd (IDX), Sonic Healthcare Limited (SHL) and Healius Limited (HLS).
It’s worth noting that while the current government will be pursing tax cuts, Labor is committed to see reform through its negative gearing changes, imputation credit refunds and capital gains tax changes.
Labor looks to support but enhance the tax rebate for low and middle income earners and oppose benefits to high income earners.
Major elections generally have a negative effect on confidence. However, the government is one of the biggest spenders in the economy. During election time, there is a spike from this sector in spending on advertising as well as boosts to things such as healthcare and infrastructure spending.
Positives: OOH!Media Ltd (OML), Southern Cross Media Group Ltd (SXL), Nine Entertainment Co Holdings Ltd (NEC), Healius Ltd (HLS), Sonic Healthcare Ltd (SHL).
Negatives: Medibank Private Ltd (MPL), NIB Holdings Limited (NHF), discretionary retailers.
Overall, the size of the stimulus was relatively low. Together with a slowing economy, this will most likely mean earlier rate cuts from the RBA. High yielding stocks are likely to remain attractive.
My top picks are Integral Diagnostics Ltd (IDX), Nine Entertainment Co Holdings Ltd (NEC), Coles Group Ltd (COL).
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.
