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Hewison Insights

What does a Labour win mean for investment markets?

Nathan Lear
Partner & Wealth Adviser
25 May 2022

The 2022 federal election results are in. Following last Saturday’s election, the Australian Labor Party (ALP) led by Anthony Albanese has returned to office for the first time since 2013. There is still some uncertainty weather the ALP will govern as a majority as final voting is completed. 

The ALP’s economic policies are not vastly different to the outgoing Liberal-National Coalition (Coalition) Government’s policies. Some of the ALP’s key policy changes include – faster climate action, investment into electricity infrastructure and renewables, additional spending into aged care and childcare, and a housing shared equity scheme to name a few. There was little in the election campaign from both major parties that is likely to have a big impact on economic forecasts in the next one to two years.  

The current state of the economy is already presenting a challenging environment for the incoming government, with rising interest rates, slowing growth, rising inflation, global geo-political tensions and a complex foreign policy environment.  

 Market reaction 

The sharemarket reaction to a change of government is likely to be minor. This is due to the ALP’s macro policies not being significantly different to that of the outgoing government and also that the market was not surprised by an ALP victory. On the first trading day since the election on Monday 23rd May, the sharemarket response was muted with the market flat, rising by 0.05%. 

Neither the ALP or the Coalition’s election campaigns focused on economic policies likely to have significant impacts on equity markets. For example, this election was focussed on climate change, pandemic response, national security and affordability. Whereas previous elections were fought over hot topics such as negative gearing, franking credits and capital gains tax.  

Markets like certainty and now the election is behind us, this may provide some stability that the market is after.  

History tells us in the months following an election result, the sharemarket generally underperforms during a change of government and performs better following a Coalition election victory. However, this time round the market has been down in the weeks leading up to the election. Australia is already facing several economic challenges such as rising interest rates and inflation that can continue to put pressure on the market.    

 The same impact could be said for the property market with not much being presented with respect to economic policy. In the 2019 election, there was a lot of concern around the ALP’s negative gearing and capital gains tax policies. This time around the ALP has a housing affordability program with its Help to Buy Scheme. Under the policy the ALP would contribute up to 40% of the purchase price for new homes and up to 30% of the purchase price for existing homes. While this policy has the potential to help lower income earners into the property market, the downside is the government would have an ownership stake in your property which has its drawbacks.  

 Following Saturday’s election result, investors will continue to digest the impact of the ALP’s policies on investment markets. At Hewison Private Wealth we take a long-term investment approach and do not let short term events such as a change of government impact our investment decisions.