Labor wins the 2022 election: How will it impact your portfolio?
The results are in and Australia's 31st Prime Minister is Labor's Anthony Albanese. What does it mean for your portfolio?
The Australian Labor Party won the 2022 federal election, running on election promises of lifting wages, child care subsidies to lift women's participation rates and strong action on climate change.
But this changing policy does not mean you need to completely change your investments.
Strategically, things can remain the same. However, AMP Capital's Dr Shane Oliver points out that investors can take advantage of new opportunities.
"For stock pickers, though it may impact certain sectors, clean energy-related, health, education, home builders and some manufacturers may benefit but high carbon emitters may lose," he said.
Historically, what does a new PM mean for the markets?
If you're one for history, the last 11 elections held since 1990 show the All Ordinaries Index has climbed by an average of 1.2% in the 15 days immediately following an election, stats by CommSec show.
But a Labor win might not be the immediate boost to your portfolio that you are used to. This is because the market only increases by 0.6% when Labor wins.
Going further, the day after polling day, the All Ordinaries Index ticked 0.3% higher. When the Liberal National Party (LNP) won, the index delivered a 0.5% increase. But when Labor won, the index finished flat on average.
At the time of writing, history is repeating itself, with the All odds down 0.028%.
CommSec's associate equity market analyst Divik Nigam highlights that past performance is not a reliable indicator of future returns.
"Clearly the background to every federal election is different. And the current federal election is occurring when there is a lot of uncertainty. Global markets have been very volatile and have experienced broad-based losses in recent weeks," Nigam said.
"Since the start of the year to 13 May, the S&P 500 Index has lost 15.6% and recently touched a 52-week low."
Winners and losers
Unsurprisingly, a new party will push for a new agenda and policies that will have an impact on the share market.
Summing up the winners and losers, Saxo Bank's Australian market strategist Jessica Amir highlights a few sectors you should be looking at.
- Electric vehicles (EVs): Under Labor's policy, they'll remove import tariffs on luxury vehicles, making a $50,000 Nissan Leaf around $2,000 cheaper to buy. EVs are to be exempt from luxury-car tax of $79,659. If businesses provide EV cars to employees, they can save $9k per year. Discounts begin in July.
- Win for defence spending and shares in this sector as it remains at 2% of GDP spending.
- The telcos are getting a boost with $2.4 billion to expand full fibre NBN, plus commitment to $4.5 billion upgrade in place by former government.
- Win for women with childcare subsidy raised to 90% for the first child in care and increasing family income threshold from $343,305 to $543,000.
- Large green infrastructure projects for battery companies and solar, including solar banks and more than 400 community batteries across Australia. This should have a positive impact on Australia's green metals.
- Win for trade deals with Australia likely to sign partnerships with Japan, Canada and South Korea.
On the flipside, Labor's policies could impact some of Australia's largest businesses.
- Bad for multinationals: Labor wants to cap deductions at 30%, work with the Organisation for Economic Cooperation and Development's (OECD) Two-Pillar Solution for a global 15% minimum tax for large corporations and close loopholes, meaning they will pay tax in Australia. This will impact some of your multinational investments.
- No change for infrastructure spending: Despite spending in different areas, the government is not spending more.
- Climate change: Having more ambitious climate change targets is a catch-22 for investors. The positives could be offset by falling coal, oil and liquefied natural gas (LNG) use.
Investing with the new government
While there's no need to completely change strategies, you will have some opportunities that arise with a new government.
This is because large-scale funding will flow towards the government of the day's agenda.
With the Labor party, you could look into the transition to net zero.
"Yes, there will be opportunities for investors in clean energy," Dr Oliver continues.
"Some miners may lose but the demand for metals will benefit as decarbonisation actually means more commodity demand initially, not less."
Going a step further, the Investor Group on Climate Change's (IGCC) CEO Rebecca Mikula-Wright said that Australia has been given the opportunity to unlock more than $130 billion in climate investment, which will create new jobs and industries.
"Investors stand ready to invest billions of dollars into climate-positive solutions for Australia's future, and all the evidence shows that investment will be a net benefit for the national economy," Mikula-Wright said.
Moving away from climate, Dr Oliver points out that some of the government's other policies, including lifting wages and cheaper childcare subsidies, could have a second-order impact on markets.
"It may help consumer cyclicals a bit but mainly via cheaper childcare and higher female participation. Higher wages are more ambiguous. If it's underpinned by higher productivity growth then it may result in a sustained higher real wage growth. If not, it could just result in a wage/price spiral with no improvement in real wages," the economist concludes.
To find out how it will impact your finances, click here.
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