Election result bodes well for confidence

Australia-VotesInvestors should be cheered by the Australian Federal election result which put an end to minority government after only 1 hour of vote counting.  The Senate, while not changing till 1st July 2014, is also shaping up as a workable result for the new Government as the ALP and the Greens have lost their ability to amend and block legislation. The result will lead to an increase in business confidence in Australia, a result that will be affirmed over the coming weeks by various confidence surveys.

Business confidence was recently at the lowest point since 2008 thanks to consistent interference in business by the previous government. A succession of hastily derived policies, ineffective taxes, a pro union and anti-business stance and a class warfare campaign were just a few of the prongs used to reduce Australian business into a state of depressed activity. A very long election cycle and  a strong Aussie dollar did the rest.

This election result has however been widely anticipated with the local market rising over 8% in the last 2 months compared to the Dow Jones which fell slightly. The banking sector, more than 30% of the market , should see an increase in lending and business activity. Tourism will be lifted by the lower dollar which draws more inbound tourists while encouraging the locals to holiday at home. Low interest rates and a level of optimism may see building approvals continue the rises of the last few months while retail sales should improve after an uninspiring period. And Christmas is getting closer!

Unemployment will be the interesting one with a likely reduction in public service numbers hopefully being balanced by greater confidence in the public sector. Manufacturers will be delighted by the demise of the carbon tax which pushed up prices while delivering no discernible advantage to the public.

In fact it is possible that the anticipated falls in interest rates may not happen after all. If the RBA detects signs of recovery, no further cuts will be needed. The rate cycle may have bottomed.

Overall, Australia has passed into a new phase with the emphasis of government being on economic pragmatism rather than socialist ideology. We need investment activity to grow the Aussie pie. The pie starts growing…..now!