Share market investors eye budget winners as government spends up

Mining and renewable energy-related companies are the biggest winners from the big-spending budget, but some other sectors could also get a boost.

Mining and renewable energy-related companies are the biggest winners from Labor’s big-spending budget last week, but several other sectors could get a boost from new government initiatives.

Housing, materials and retail stocks are among those to potentially enjoy good gains, analysts say, although moves so far have been muted.

JBWere chief investment officer Sally Auld said the budget might also provide short-term support for the Australian dollar, “given expectations of (interest rate) easing in other G10 economies”.

“Sectors such as consumer discretionary, real estate, materials and communication services should benefit from the budget,” Ms Auld said.

“But if Treasury’s forecast for slower nominal GDP growth is realised in coming years, this may suggest some downside to aggregate earnings expectations for the ASX 200,” she said.

JBWere chief investment officer Sally Auld. Picture: Ryan Osland

Last week saw some strong post-budget share price rises among companies in the critical minerals sector, with graphite company Renascor Resources surging 30 per cent and Arafura Rare Earths rising 8 per cent, but both lost some ground on Monday.

Equity Trustees Asset Management investment specialist Grant Mundell said the government’s Future Made in Australia initiatives were positive for renewable hydrogen energy and critical minerals.

“The combination of income tax cuts, rental assistance and energy bill rebates is marginally positive for retail stocks, as we think this will be spent on more non-discretionary and essential services,” Mr Mundell said.

“Rental assistance is a marginal positive for land lease developers but the outlook for rates is more important,” he said.

Baker Young managed portfolio analyst Toby Grimm said the budget’s overall impact on shares would be positive in the short-term, but there might be a “payback” for stocks if it led to higher-for-longer interest rates for businesses and larger wage rises.

“It increases net spending by the government, which is short-term fuel for the economy and by extension corporate revenues and earnings,” Mr Grimm said.

He said the budget was good news for stocks in the rare earths sector that had been battling price pressures and job losses, and Iluka Resources – the world’s largest producer of zircon – now had a more favourable backdrop.

Mr Grimm said there were no major positives for health care, industrial and infrastructure stocks but “there wasn’t a standout losing sector”.

The retail sector’s outlook remains clouded by high interest rates and a weak economy, but could benefit from the budget in the short term thanks to the stage three tax cuts and an extra $300 going to every household via energy bill rebates.

“Handing money to consumers bolsters available funds for consumer discretionary companies to capture,” Mr Grimm said.

“It’s a positive for retailers but the market is grappling with lots of moving parts,” he said.

“The payback comes as the increase in government spending is inflationary and could keep interest rates higher than they would have been otherwise. This could lead to higher financing costs and higher employment costs.”

Baker Young managed portfolio analyst Toby Grimm. Picture: Supplied

Yarra Capital Management head of macro and strategy Tim Toohey said the mining industry would welcome the budget’s billions of dollars of production tax incentives.

“While we’ve seen some initial uplift, it realistically it shouldn’t move stocks too much until further details emerge,” he said.

“Consumer stocks should be happy with the combination of the double whammy of more cash being splashed at consumers and a CPI-friendly forecast.

“The tangible policies for new housing construction are frankly inadequate to make any real difference and housing stocks will likely be underwhelmed by the new dollars directed at the sector. The prospect of rate cuts again coming into view is ultimately what will matter for the sector.”

Mr Mundell said there were about 50 elections this year and other countries might deliver pre-election budgets that were positive for short-term growth.

“However, post-election budgets are typically tighter,” he said.

Originally published as Share market investors eye budget winners as government spends up