Invest
How significant is politics’ effect on the markets and should I be cautious with my investing pre-election?
Invest
How significant is politics’ effect on the markets and should I be cautious with my investing pre-election?
Cautiousness is a constant component of our investment approach and this is not particularly affected by the upcoming Federal election or other short-term factors. Academic studies and our own extensive experience show that a long-term focus on reasonably valued, high-quality assets is more likely to generate superior returns over time.
How significant is politics’ effect on the markets and should I be cautious with my investing pre-election?
Cautiousness is a constant component of our investment approach and this is not particularly affected by the upcoming Federal election or other short-term factors. Academic studies and our own extensive experience show that a long-term focus on reasonably valued, high-quality assets is more likely to generate superior returns over time.
Elections tend to be somewhat of a distraction to markets and there can be relief once they are over. Markets tend to underperform in election years in the United States but there is less evidence of a drag on activity in Australia. Consumer sentiment in fact jumped sharply by 8.5 per cent in the latest reading by Westpac/Melbourne Institute in May 2016. The recent Reserve Bank interest rate cut, ongoing property price rises and a relatively benign budget had far greater influence. The disruption to business has also been minimal as seen in the latest comparatively positive NAB Business Survey for April 2016.
There is too little to split the political parties to have significant impact on markets. It appears the Coalition will be returned with a smaller majority in the lower house and an inability to control the Senate. Large-scale reform would be hard to achieve in these circumstances. Both major political parties are having difficulty funding their expenditure promises. They indicate they will bring the budget back into surplus around the same time. Implications for the Reserve Bank’s interest rate policy are limited.
A Coalition victory is likely to presage greater change to the superannuation system and more stimulus to middle-income spending through personal income tax cuts. A Labor victory would probably see establishment of a Royal Commission into banking practices, possible changes to negative gearing tax incentives and cancelation of cuts to healthcare bulk-billing incentives.
Elections with more binary outcomes tend to have far greater impact. Uncertainty is no friend of asset prices. The British vote on whether to stay in the EU has far more significant implications for markets. An exit would likely cause recession in Britain, lower interest rates for longer and two years of uncertainty. It could damage the fragile recovery in Europe and would call into greater question the sustainability of the union of the remaining states. We expect the British public to vote to stay, though the outcome is likely to be relatively close.
The US presidential election will also have greater impact on markets. It appears a Trump presidency would create a more volatile environment. Any shifts toward protectionism and against immigration would likely weigh on economic growth.
Beyond upcoming elections, there is justification for investors to be more cautious than usual now. A number of significant risks cloud the outlook. We think the risk of global recession will rise in the next few years. This would detract from the ability to generate positive returns from growth assets like shares and property. Relatively high prices in both share and bond markets enhances this concern. We also expect interest rate rises in the United States to surprise on the upside and this will induce greater volatility.
Andrew Doherty, director, AssureInvest
About the author
About the author
Stock market
Super fund investors bid to acquire Sydney Airport
A group of super fund investors has lodged a non-binding takeover bid for Sydney Airport, valuing the company at over $22 billion. ...Read more
Stock market
10 most globally held stocks revealed
Australian investors remain bullish on electric vehicles and technology stocks, according to their long-term held positions, new research has shown. ...Read more
Stock market
How ‘gamer investors’ are pushing a new wave of social responsibility
A new generation of younger retail investors are pushing a new social movement, yielding a distributive impact on the markets, most notably through the GameStop saga, two researchers have revealed. ...Read more
Stock market
ASX tipped for record high despite inflation fears
The market is tipped to shake off fears of rising inflation, with the ASX 200 now tipped to close the year at a new record high, an economist has revealed. ...Read more
Stock market
‘Commission-free propaganda’: Warning issued for retail investors
The phrase “if you’re not paying for it, you’re the product” applies just as much to stock trading apps as it does to social media networks. ...Read more
Stock market
Is the tech sell-off creating opportunities for investors?
A tech sell-off sparked by inflation concerns has seen world markets crash. But is it creating an opportunity for investors to ‘buy the dip’? ...Read more
Stock market
Government opens arms to Wall Street
In its bid to maintain Australia’s global competitiveness, albeit its firmly shut borders, the Australian government has included a measure in its recent budget to allow foreign financial services p...Read more
Stock market
Aussie market falls on US inflation
The Australian sharemarket has fallen on the bell after Wall Street experienced sharp sell-offs overnight due to hotter than expected inflation data. ...Read more
Do lockdowns boost property prices? Are short-sellers levelling the playing field? Did you lodge your tax returns early?
Listen now
Will lockdowns halt the housing boom? Is the metaverse taking over? And the cons of lodging your tax returns early
Listen now
Are you being priced out of the market? Have you got the Tuesday blues? And are you ready for the upcoming super changes?
Listen now
Are property prices set to crash? Should you jump on board the fintok craze? And how to prepare for this tax time
Listen now
Stock market
Super fund investors bid to acquire Sydney Airport
A group of super fund investors has lodged a non-binding takeover bid for Sydney Airport, valuing the company at over $22 billion. ...Read more
Stock market
10 most globally held stocks revealed
Australian investors remain bullish on electric vehicles and technology stocks, according to their long-term held positions, new research has shown. ...Read more
Stock market
How ‘gamer investors’ are pushing a new wave of social responsibility
A new generation of younger retail investors are pushing a new social movement, yielding a distributive impact on the markets, most notably through the GameStop saga, two researchers have revealed. ...Read more
Stock market
ASX tipped for record high despite inflation fears
The market is tipped to shake off fears of rising inflation, with the ASX 200 now tipped to close the year at a new record high, an economist has revealed. ...Read more
Stock market
‘Commission-free propaganda’: Warning issued for retail investors
The phrase “if you’re not paying for it, you’re the product” applies just as much to stock trading apps as it does to social media networks. ...Read more
Stock market
Is the tech sell-off creating opportunities for investors?
A tech sell-off sparked by inflation concerns has seen world markets crash. But is it creating an opportunity for investors to ‘buy the dip’? ...Read more
Stock market
Government opens arms to Wall Street
In its bid to maintain Australia’s global competitiveness, albeit its firmly shut borders, the Australian government has included a measure in its recent budget to allow foreign financial services p...Read more
Stock market
Aussie market falls on US inflation
The Australian sharemarket has fallen on the bell after Wall Street experienced sharp sell-offs overnight due to hotter than expected inflation data. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
