Business Daily Media

Going up. Monday showed what the market thinks of Morrison

  • Written by Mark Humphery-Jenner, Associate Professor of Finance, UNSW

The coalition’s shock victory pushed up the S&P ASX 200 1.7% in the biggest surge since Kevin Rudd was elected prime minister in 2007.

The ASX 200 measures the price of Australia’s 200 biggest public companies. The jump pushed up the value of shares across the entire market by A$33 billion. The price of one of the banks jumped 9%.

All of the polls leading up to the election had Labor ahead, with Labor apparently widening its lead[1] in the final few days.

Punters placing bets also overwhelmingly favoured Labor. Sportsbet was so confident of a Labor victory, it paid out bets on Labor early[2].

Which means the market jumped in surprise first thing on Monday.

It had been expecting a Shorten victory, and had to suddenly reprice after discovering it had been a Morrison victory.

image ASX 200, May 14 to May 20. Yahoo Finance[3]

It didn’t jump for other reasons

It’s pretty clear that the jump didn’t reflect anything else, for two reasons:

  • it is surprises that move markets, because everything else is priced in, and the coalition victory was just about the only surprise over the weekend

  • we are able to compare the ASX movements with those on other markets ahead of it opening. The ASX normally follows other markets unless there is a clear local reason to do otherwise. In this case, the related market indexes in the United States, Britain and Canada had all fallen in their most recent sessions before the ASX opened. By contrast, the ASX indexes jumped sharply, suggesting a very strong positive reaction to only big piece of local news around on the day

Others down, Australia up

image Returns on Friday May 17 in the US, Canada and UK, on May 20 in Australia. Red = foreign indexes. Green = Australian indexes[4]

Why such a strong reaction?

It’s hard to be sure, and different government policies affect different industries differently. But there are common threads:

Property effects: Labor’s capital gains tax and negative gearing tax policies might have hurt property prices[5].

The prospect of prices somewhat stronger than they might have been might help arrest the decline in construction which might help generate employment, which might boost economic growth. Stronger prices bolster consumer confidence and support spending. They can also support it directly as people tap into equity from their homes.

Tax factors: The market generally reacts well to tax cuts. This was the case in the US[6] as Trump’s tax cuts became increasingly likely. This is due in part to the expectation that they would boost the economy. The market generally dislikes tax increases. While it is not clear whether the Coalition’s promised longer-term tax cuts[7] will materialise, they have plans for them that Labor didn’t.

Labor’s dividend imputation policy would have harmed retirees’ incomes. With it off the table they can spend and hold shares had they had before.

Banking and finance: The coalition is generally seen as more concilliatory towards the banking sector, being reticent to impose major penalties following the royal commission, and disinclined to commence it to begin with. The share price of big four banks increased significantly: from 6.27% for the Commonwealth through to 9.21% for Westpac.

Mining and energy: Labor was perceived as hostile to mining and resource companies. Several recorded strong price gains. Its seeming reluctance to acknowledge the costs of its climate change policies[8] can’t have helped.

We can’t know for sure

Other factors might include the Coalition’s approach to infrastructure and to unions, which are generally business friendly.

Often markets react to what they think markets will do, rather than to anything real. But it’s fair to say that, to start with, they are feeling better.

References

  1. ^ apparently widening its lead (www.theaustralian.com.au)
  2. ^ paid out bets on Labor early (www.smh.com.au)
  3. ^ Yahoo Finance (au.finance.yahoo.com)
  4. ^ Red = foreign indexes. Green = Australian indexes (www.asx.com.au)
  5. ^ might have hurt property prices (www.abc.net.au)
  6. ^ the case in the US (www.businessinsider.com.au)
  7. ^ promised longer-term tax cuts (www.liberal.org.au)
  8. ^ reluctance to acknowledge the costs of its climate change policies (www.theaustralian.com.au)

Authors: Mark Humphery-Jenner, Associate Professor of Finance, UNSW

Read more http://theconversation.com/going-up-monday-showed-what-the-market-thinks-of-morrison-117396

Business Reports

Airbnb reveals guests from Australia among most enthusiastic searchers for trips to Japan

As Japan reopens to the world for individual travel from the 11 October, Airbnb data has revealed guests from Australia, South Korea, the United States, Hong Kong and Singapore have generated the most searches to visit the land ...

Banks could save US$246 billion running a cloud-native core

A new report from Mambu and Celent shows banks need to invest in core platforms to improve performance and reduce costs Banks globally could save over US$240 billion by switching to the cloud, according to a new report from l...

Warning to Aussie Small Business After Optus Cyber Breach

Australian SMEs are being warned they’ve been left exposed after Optus hackers accessed the personal information of up to 10 million Australians.  “This is very serious and has the potential to create a business email co...

OZTENT SWAG WINS GOOD DESIGN AWARD

The Oztent Group has been awarded a Good Design Award for their OZTENT RS-2 Double Swag. The OZTENT RS-2 Double Swag is a world first.    It’s the only two-person swag that can be set up in less than 30 seconds.  Its...

Aussie shoppers use a phone in-store to research before buying

Bazaarvoice, Inc., the leading provider of product reviews and user-generated content (UGC) solutions, today released its latest research, based on a survey of more than 6,000 global shoppers and over 400 retailers. The report s...

Valerio Zanoli’s documentary HOMELESS

Film director and real estate entrepreneur Valerio Zanoli (www.valeriozanoli.com) has recently presented the first images of his latest work, the documentary HOMELESS, at the 2022 Statewide Conference on Ending Homelessness. T...

Web Busters - Break into local search

WebBusters.com.au