Labor blows to business flagged by Macquarie analysts

Analysis of ALP’s proposed policies shows the impact of a Shorten government would mainly be negative, but one sector may win out.

Macquarie set out to assess the impact on major business sectors of a Bill Shorten victory in next year’s election. Pic: Kym Smith

Banks, property, builders, health insurance and energy giants are all tipped to suffer under a Labor government, Macquarie analysts say.

One winner, however, would be infrastructure developers, Macquarie says in an assessment of the impact of Labor policies should Bill Shorten win next year.

Macquarie analysed sectors it believed would be most impacted by Labor’s proposed policies - banks, utilities, energy, property, builders and insurance.

“With a few exceptions, the current policies are likely to be at least marginally negative to earnings per share, though many are already in base case estimates,” Macquarie’s research says.

Assessing flagged Labor reforms to negative gearing and franking credits, as well as energy policy, Macquarie analysts said the impact of a Labor government was likely to be felt by the banks as well as utility and energy companies.

Nor would the property and building sectors be spared.

Proposed changes to negative gearing had the potential to impact the already fragile market, the analysts added, and while the effects on house prices was difficult to estimate, sentiment concerns could put further pressure on the banks.

“Fundamentally, banks are likely to experience a contraction in credit and earnings growth,” Macquarie said.

“With falling house prices, the benefit to investors from negative gearing has diminished, particularly when combined with the inability for investors to claim depreciation expenses on existing properties.

“Furthermore, if property prices were to decline while rents broadly remain unchanged, the implied benefit from negative gearing would be marginalised.”

Macquarie said the attractiveness of bank shares would be likely to diminish as a result of Labor’s proposed changes to franking credits, which could affect long-term valuations and prompt investors seeking high yields to look to infrastructure and REIT stocks, the Macquarie analysts said.

The changes, which would affect all shares held by investors in a zero or low-rate tax environment, could be more significant given retail investors’ overweight position to bank shares.

Macquarie said private health insurers would be impacted by Labor’s suggested 2 per cent cap on average premium price rises.

“The potential of capped pricing creates significant margin risks for the health insurance industry,” the analysts said.

One winner from a Labor victory could be infrastructure development, which features prominently in ALP policy, Macquarie said.

“With the recent election success in Victoria, as well as feedback from infrastructure planning agencies, this certainly seems to be possible,” the analysts said.

Macquarie said Labor’s energy policies were likely to mean an oversupply in the energy market, due to additional renewables, meaning that gentailers like AGL and Origin Energy were the most likely to suffer under a Labor government.

“Unlike the Coalition, Labor has provided a well-articulated policy to try and meet the energy trilemma of lower prices, lower emissions, and reliability,” the analysts said.

“Much of the work has been built on past policies and limited evolution of the Coalition’s energy strategy.”