Federal elections occur in Australia every three years — a shorter election cycle than in the US. If an election cycle is counted as the year before an election is held, the year of the election and the year after the election, there does appear to be some interesting results. The best performing years in the share market have been the year before or year of an election. Only once in a 28-year period have we seen the best performance over the three years being the year after an election result. The year after an election result is likely to herald the worst performing year in the three year election cycle. It has been the worst performing year in the three year election cycle in seven out of the 10 election cycles since 1979.
A simply trading strategy where you buy on the last day of April the year before an election and hold until a year after the election would have seen an average return of 29% over the 3-year election cycle. On the other hand, a ‘buy and hold’ strategy would have seen an average return of 26.7% over the election cycle. Since 1979, the trading strategy would have seen $10,000 turned into over $260, 000, while the ‘buy and hold’ would have resulted in just over $190,000 — a difference of more than $70,000.
For markets, it’s not just the question of who wins power but also of stability. A key question is whether we see a majority or minority government. A minority government offering less stability to markets. At the moment, Betfair is paying $1.24 for Labour win, $5 for a Coalition win and $200 for any other party to win. (Source: Betfair, 2pm, Monday 4 March).
Australian impacts
Outside of the much debated excess franking credits, negative gearing changes, here’s a list of possible impacts:
Source: Bell Direct Research, 4 March 2019
Ad spend (2004-2016)
Financial halves that include a Federal election have seen average TV ad revenue growth 7% compared to halves without Federal elections, which saw average growth 1.4%.
Healthcare
With Labor promising more spending on healthcare, it could prove to be a positive to those companies exposed to the domestic healthcare space. In particular, Healius (formerly Primary) and Sonic (SHL) are impacted by the Pharmaceutical Benefits Scheme, which could see a boost.
Domestic energy
With energy likely to be a key battleground in Federal and State elections, the uncertainty will likely impact negatively on sentiment. The focus appears to be cutting energy bills for consumers, which would be a negative for energy retailers such as AGL (AGL) and Origin (ORI).
Health insurance
Labor has promised to keep private health insurance premiums capped at 2% per annum, if it wins the Federal election. This impacts on health insurers such as Medicare (MBL) and NIB Insurance (NHF). Private hospital operators such as Ramsay (RHC) and Healthscope (HSO) are also likely to be impacted as the insurers work to try and maintain margins by cutting costs.
Property listings
REA (REA )noted that over a 6-week period during the last Federal election, listings fell 15%. Listings were down 3% in 1H19, and this should accelerate in 2H19 due to the Federal election. There’s scope for rapid revenue growth once election is out of the way, depending on the taxation measures applied.
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