Sharemarket surges in post-poll relief rally, adding $33bn to market value

Scott Morrison’s election victory has given shares a lift like no Coalition win since 1980.

Shares surged in a post-election rally. Pic: AAP

Australian stocks have posted one of their biggest post-election jumps, adding $33 billion in market capital, as banks and health insurers breathed a sigh of relief at the Coalition win.

The S&P/ASX 200 share index closed up 110.8 points, or 1.7 per cent, at an almost 12-year high of 6376.1 points after the unexpected Coalition election victory.

The broader All Ordinaries ended up 120 points, or 1.89 per cent, at 6,483.

It was the best one-day post-election rise since Kevin Rudd was elected in 2007 and the second-biggest rise since a 2.6 per cent jump after Bob Hawke came to power in 1983.

For the All Ordinaries, which predates the ASX200, it was the biggest lift after a Coalition win since October 1980, when Malcolm Fraser’s Liberals and Nationals defeated a Bill Hayden-led Labor and the All Ords jumped 6.9 per cent on the day trading resumed.

It was also the strongest one-day gain in the Australian sharemarket since a 1.9 per cent rise on December 27, when stocks began to recover from a 15 per cent fall since late August.

Shares in the big four banks surged sharply, and health insurer gains hit double digits, as investors reacted to the defeat of a Labor party that had promised extra intervention.

The Coalition’s re-election ended the threat of dividend imputation changes, increased regulatory scrutiny and capped insurance premiums.

Expensive industrials, technology and utilities stocks came under pressure, however, as investors took profit to rotate into sectors that could benefit from a Coalition government.

The sharp rally across banks and financials – which added billions of dollars in gains - also came amid the prospect of the economy regaining momentum under a more stable outlook in Canberra.

The Coalition, which only called the financial services royal commission reluctantly, is perceived by investors to be friendlier to the banking industry.

“Investors won’t need to work through the consequences of the Labor Party’s proposed changes to negative gearing, franking credits and taxation scales,” CommSec chief economist Craig James said.

Fully franked bank dividends would have been less valuable to investors if Labor had intervened on dividend imputation - changes the Coalition portrayed as a tax - while the opposition was also seen as more likely to raise the federal banking levy.

Another worry for the big banks had been the impact on the housing market of any restrictions to negative gearing on investment properties, but they can now look forward to proposed assistance for first-home buyers that may stimulate mortgage demand.

“With negative gearing now off the table, the medium-term outlook for housing is a little less negative,” JP Morgan strategist Ben K Jarman said. “We wouldn’t, however, expect much of an immediate lift.”

The surge in bank shares came as brokerage Morgan Stanley raised its target prices for the major banks by an average of 2.5 per cent following the Coalition’s federal election win.

At the same time the brokerage upgraded its recommendation on NAB to “overweight” from “equal weight”. “We believe the federal election result reduces tail risks in relation to credit quality, the mortgage market and the regulatory environment,” said Morgan Stanley’s Richard Wiles, in a note to clients.

However, he cautioned the fundamental outlook for Australian banks includes “challenging operating conditions and an uncertain regulatory environment”.

Indeed, economists widely expect the Reserve Bank of Australia to start its cash rate cutting cycle from next month.

“We expect some support for major bank share prices in the near-term but believe that trading multiples across the group are not cheap enough to compensate for low growth and falling returns on equity,” he said.

The Reserve Bank must now factor in the Coalition’s surprise win and its possible impact on economic growth when it mulls whether to deliver the cut in the cash rate it has implied could be on the way.

“The question is whether the Reserve Bank waits for the ‘natural’ lifting of economic activity post-election or whether itbelieves that an extra kick along is required,” Mr James said.

Royal Bank of Canada head of Australian and New Zealand FIC strategy Su-Lin Ong said the near-term implications for the RBA over the next three to six months are limited, with the rate still likely to be cut from 1.5 to 1.0 per cent by the end of the year.

“To our mind and given market pricing, the key debate remains whether the cash rate will move sub 1.0 per cent,” Ms Ong said.

The RBA will give an insight to its pre-election thinking on Tuesday with the release of the minutes from its May board meeting.

With AAP