The uncertain federal election outcome is set to send the Australian stock market lower

THE uncertain federal election outcome is set to send the Australian stock market lower as the spectre of a political stalemate rattles investors.

AMP Capital Investors chief economist Shane Oliver.

THE uncertain federal election outcome is set to send the Australian stock market lower as the spectre of a political stalemate rattles investors.

AMP Capital chief economist Shane Oliver said three years of minority government looked likely, which was not a good outcome for the economy or markets. Peak industry bodies including the Business Council of Australia have warned of political gridlock.

“The lack of an election outcome and the prospect of minority government either in the lower house or the Senate will be taken badly by the market,” Dr Oliver said.

“It’s just like with Brexit. Markets don’t like the uncertainty associated with these sorts of things and it looks like there’s going to be a bit of policy uncertainty in Australia.”

Dr Oliver said that, given the political uncertainty ushered in by the election, Australia’s triple-A credit rating looked increasingly untenable.

But he said the markets’ reaction to the election would not be on the level of Brexit, when Australian shares tumbled more than 3 per cent amid concerns Britain’s decision to exit the European Union would hammer the global economy.

Dr Oliver noted Australian investors have had experience with minority governments. Former Labor prime minister Julia Gillard formed a minority government after the 2010 election.

Dr Oliver believes Brexit and election-related risks have added to the case for another interest rate cut, although the RBA will wait and see how the dust settles and keep the cash rate on hold at 1.75 per cent when it meets tomorrow.

Rushton Capital Management executive director Lee Rushton said investors were going to have to get used to low returns and volatility.

“In the last six to 12 months we have entered an environment where returns are going to be low,” said the Brisbane-based fund manager. “Markets are up significantly post Global Financial Crisis, which means future returns are going to be subdued.”

He said Brexit and concern about a hard landing in China were hitting the commodity stocks that made up a big proportion of the Australian share market.

Banks, meanwhile, are concerned about an overheated property market and debt.

CMC Markets chief market strategist Michael McCarthy said the political vacuum created by waiting days for a result or even a month for the final Senate composition was bad news for investors.