Since 1990, Australia has held 12 federal elections and in the same period, the Australian equity market has risen, on average, by around 9 percent each year. Throughout the same period, the market has only delivered 8 years with a negative return, with only two of these coming in an election year. 

In what may come as a surprise, of the 12 years in which an election was held, not only was the calendar-year performance positive in 10 of those years, but the average return was also significantly better than normal, rising about 14 per cent (the median increase was 13 per cent). 

Elections are integral to any nation and influence economic policies, enterprise sentiment, and investor confidence. Australia’s federal elections have historically been recognised by increased market activity and often short-term volatility as investors assess potential changes to policy and economic direction. 

Elections determine the tide of any eventual market, as stock markets are forward-looking and often price in opportunities rather than reality. Uncertainty over new policies and leadership can move the markets, presenting both opportunities and risks. 

Volatility is the hallmark of the Australian election years. The ASX often moves in response to investors weighing potential changes to government policies, tax regimes, and economic approaches. This election year has been no different, but the volatility has certainly been a result of more global issues.  

For example: 

2019 Federal Election: The market moved to uncertainty about Labor’s proposed changes to the franking credits, which mainly affected retirees and self-funded investors. The ASX rallied on the Coalition winning, with relief showing up in a bounce in banking and financial stocks. 

2013 Federal Election: The Liberal-National Coalition won, under Tony Abbott, against the Labor government of Kevin Rudd. The markets reacted favourably, particularly for the mining industry, looking forward to deregulation and pro-business policy. 

2007 Federal Election: Labor, led by Kevin Rudd, defeated the Coalition led by John Howard after a long-sitting government. However, it is hard to establish with certainty that movements in the market were directly linked to the election result, as the election occurred around the same time as the first stages of the Global Financial Crisis (GFC). 

There is a widespread belief that the ASX has historically outperformed when there is a Liberal-National Coalition government in power, due to their focus on pro-business policies, lower taxes, and economic deregulation. Labour governments, on the other hand, are generally linked to ramped-up public spending, social welfare, and regulatory mechanisms—policies that many investors see to be unfriendly to markets. 

Despite these trends, markets do not always tilt one way or the other for a given party. The ASX is subject to wider dynamics, including international economic conditions, commodity prices, interest rates, and investor sentiment. While political policies are significant, they only play a partial role in deciding market performance. 

Diversification is still a mainstay of risk management during political transitions. A diverse portfolio of various asset classes and industries helps absorb the shock of sudden market fluctuations. Investors may also be unable to escape unpredictable election-related market moves, but by diversifying their investments across multiple asset classes, they can mitigate this risk. 

The best thing investors can do is to stay informed while ignoring short-term election noise. Although political cycles may create headlines and short-term market volatility, the best chance of thriving after the election will always be a disciplined investment strategy and a long-term investment focus.