Criterion: Federal elections are a boon for stock markets

History shows the share market is most likely to rise in the months after a federal election, with downturns usually caused by offshore factors.

Share markets tend not to give a sausage about elections, but there are some stocks to watch. Pic via Getty.

• History shows that shares do well after an election – no matter the outcome

• Shares surged even after the last minority government, in 2010

• The major parties have differing policies towards the supermarket, insurers, resources and car leasing sectors

The market mayhem post Donald Trump’s inauguration shows that elections can profoundly influence share markets.

But today’s federal poll is likely to do nothing of the sort, unless we wake up on Sunday and Clive Palmer or Adam Bandt have been made PM.

History shows that markets like elections – so long as the only snag in the process is the democracy sausage.

According to LGT Crestone, markets can be soggy leading up to the poll but then experience a relief rally – regardless of the winning party.

The firm says that in the last 12 elections held over 35 years, the market’s performance for that calendar year was positive in ten of them.

What’s more, the average return was about 14% compared with 135 for other ‘winning’ years.

The purported horrors of a minority government are overcooked, too.

In August 2010 – the first one since 1940 – the Labor government clung on with independent support.

By the end of the year, the market rose 15%.

AMP chief economist Dr Shane Oliver says the share market rose after ten of the last 15 elections since 1983, by an average 4.2% after three months.

However, elections resulting in a change of government have  had mixed results.

After the 1996 and 2013 Coalition wins, shares were flat to down.

If there’s a problem for the market, it’s an offshore event – such as the September 11 terrorist before the November 2001 ‘Tampa’ election.

Shares fell 14% in the three months after the 2007 ‘Ruddslide’, which but coincided with the onset of the global financial crisis.

“We think a Trump tweet is likely to have a bigger impact on ASX returns than the federal election outcome,”  Macquarie Equities opines.

The sectors to watch

Elections are not entirely a Seinfeldian show about nothing, market wise.

The parties have not thrown up any hairy ones such as CGT or franking credit reform, but some peripheral policy differences could impact specific stocks and sectors.

In an about-turn, the Coalition has pledged to abolish the FBT exemption on battery electric vehicles (the break on plug in hybrids expired on April 1).

The exemption caused surge in EV novated leasing, with EVs accounting for 40%-plus of all leases.

If a Coalition government abolishes the exemption, EVs still are subject to standard vehicle FBT concessions.

Still a Coalition win could mean nervous moments for novated lease providers Smartgroup Corporation (ASX:SIQ), FleetPartners Group (ASX:FPR) and McMillan Shakespeare Group (ASX:MMS).

Best behaviour, please

With the supermarkets, both leaders have been censorious about price gouging, real or imagined.

Labor has promised an inquiry.

The normally pro-business Coalition has gone further and threatened ‘big stick’ divestment and stiff fines.

Coles Group (ASX:COL) and Woolworths (ASX:WOW) may need to crimp their margins, or appear to do so.

The Coalition backed down from its threat to break up errant insurers, but Peter Dutton promises intervention “to make sure consumers get a fair go.”

Miner policy differences

In the mining sector, Labor’s plan to create a strategic reserve of critical minerals has prompted mixed reactions.

On the one hand, it’s a sensible move to mitigate any China supply shocks.

On the other, it will create artificial supply in an already glutted lithium market, to the detriment of the likes of Pilbara Minerals (ASX:PLS).

A Coalition victory is likely to usher in policies more amenable to fossil fuels, to the benefit of Woodside Energy Group (ASX:WDS).

At stake is Woodside’s proposed $30 billion extension of the North West Shelf gas project.

The Green oppose the venture, so would Labor also do so in minority government?

The Coalition’s nuclear power plan is too long-term to influence the energy sector, but it could provide a short-term sugar hit for uranium stocks.

Dutton’s pledge to cut petrol prices by 25 cents a litre could spur more visits to Viva Energy's (ASX:VEA) servos/convenience stores.

But we’re scraping the bottom of the (oil) barrel here, so let the conjecture end and the voting begin.

Originally published as Criterion: Federal elections are a boon for stock markets