Removal of the carbon tax would benefit some companies. Photo: Paul Jones
So the federal election is over and Australia has a new government. A double dissolution aside, only South Australians and Tasmanians will go to the polls again within a year. Thank heavens for small mercies.
With a more pro-business government in charge, companies and the sharemarket are sure to benefit. Or so you'd think; the reality is little more complicated.
The influence a government exerts over the economy is relatively insignificant, at least in the three-year terms of Australia's federal political cycle.
And because markets have been expecting a Coalition victory for some time, any positive effect should in theory be priced in.
Take McMillan Shakespeare, for example, on which we suggested a hedged strategy in these pages on August 13. It has much to gain from a Coalition government but fell 3 per cent on Monday as investors took profits after gains of 40 per cent since we suggested the strategy. After taking account of the hedging bet on Kevin Rudd, the gain is more like 20 per cent.
Other stocks and sectors will also be affected, so let's look at some of the other winners and losers.
The removal of the carbon and mining taxes (if Abbott can get it through the Senate) should benefit many big companies but don't overstate the impact. Despite the chorus of discontent from chief executives, few could directly attribute poor results to either tax. Many of the worst-affected companies – such as airlines and buildings materials – are weak businesses anyway and unlikely to earn a recommendation from us.
For energy retailers AGL Energy and Origin Energy the effect of removing carbon pricing is complex. The value of coal generators – Loy Yang for AGL and Eraring for Origin – will rise substantially but the value of gas generators may fall. The removal of the mining tax is unlikely to generate much joy because its imposition created so little grief.
Few miners are paying the tax due to lower prices and lots of offsets. Coalminers would love to be paying tax because that would mean they were earning profits; lower commodity prices, not taxes, have crunched earnings for most of the industry.
The Coalition also plans to alter the national broadband network, changing it from a fibre-to-the-home network to a fibre-to-node network. This means Telstra's copper cables will be used to connect your house to the network – the so-called "last mile". This will speed up the delivery but slow the speeds the network can offer. Relying on Telstra's copper will mean it will receive rental payments instead of cash to close its network. Telstra is confident it will still receive at least $11 billion according to its arrangement with the previous government, and so are we.
Telstra may also benefit from being able to keep part of its network and the ability to build competing networks.
The smaller telcos – TPG, M2 Telecom, iiNet – may benefit from being able to keep and build selective parts of the network. But more broadly, it's the general shift to a separately owned wholesale telecommunications network – and the more level competitive landscape it brings – that's helping propel these businesses, rather than the specific tweaks to how the network is to be delivered.
The Coalition has said it will pull back on a few areas of future of financial advice reform. Indeed it has claimed to have the legislation already written. The most notable change would be the removal of the requirement for clients to opt back in to fee arrangements every two years, but tweaks are planned for other areas.
But while this sounds beneficial for stocks with financial planning and wealth management operations, such as IOOF Holdings and Perpetual – and on balance probably is – they may also rue the need for further changes in their systems and paperwork.
The banks may also have to line up (again) as everyone's favourite punchbag, with the Coalition promising a new inquiry into competition in the financial services sector, dubbed "Son of Wallis" after the 1997 Wallis report. That's not likely to help the banks but they're quite used to being kicked around, and we think there's more risk in their high valuations with the economy looking fragile.
While on political punchbags (or, if you prefer, financial companies where a little extra competition wouldn't go amiss), the ASX may benefit from the new government. For one thing, a Coalition government might not push quite as hard for greater competition.
But perhaps more importantly, it may be more amenable to the possibility of a merger. Although while in opposition, it voiced concerns over the proposed deal with Singapore Exchange, in government it may be more amenable to deals.
Health policy changes could also be favourable. While the former government cut pathology funding, means-tested the private health insurance rebate and provided incentives to doctors to bulk bill patients, the Coalition government is likely to intervene less.
Pathology and general practice companies Sonic Healthcare and Primary Health Care, hospital operator Ramsay Health Care and health insurance company NIB Holdings might all be winners here.
The Coalition also intends to sell government-owned health insurer Medibank Private and, while a public float isn't the only option, policyholders may be entitled to a priority allocation (read that how you will).
We won't be holding our breath for the hoped-for surge in consumer spending. Retailers have a habit of complaining about elections – Metcash hopped on the bandwagon particularly early – but they're an easy excuse.
It's unlikely the change of government will kill off the moths living it up in Australia's wallets. Nor will the repeal of the carbon tax increase household disposable income much – expect about $200 off the average annual utility bill.
With the election over, the Coalition government will no doubt settle into its "honeymoon period". Some believe the next three years will provide a massive boost to confidence – and drive a new golden era for the sharemarket. If only it were so simple.
The small and open nature of Australia's economy means external factors, such as China's growth, commodity prices and the Australian dollar, will have much more effect. Let the government do what it does, because your task is unchanged: buy high-quality companies when they're trading at excellent prices.
This article contains general investment advice only (under AFSL 282288).
Nathan Bell is the research director at Intelligent Investor Share Advisor. You can get access to a free trial to Share Adviser here, which includes instant access to four special reports full of local and overseas stock picks.