As Anthony Albanese commences his first week as Australia’s 31st Prime Minister, we answer the frequently asked question of how a change in government is likely to affect investment markets.
The short answer is we don’t expect a lot will change.
Generally speaking, the Australian sharemarket performs quite well in the lead-up to an election and in the following months. In fact, since 1983, the market’s average return during the five weeks before an election has been 1.74%. Then, on average, in the first three months after an election, share markets appreciated by 4.41%.
Of the last 14 elections, ten post-election periods have been positive. There have been only two periods in the same timeframe where markets delivered a negative return (in 1990 and 2007 at the early stages of the Global Financial Crisis).
While anecdotal evidence suggests a link between markets and politics when adjusting for interest rates, academic research suggests no significant variation in excess sharemarket returns between Liberal-National and Labor governments.
The last election put the spotlight on negative gearing, franking credits and family trust taxation, which could potentially disrupt investment returns. Despite this, the top 200 Australian companies posted a 3.2% return from the election period and the resulting outcome. You can read our last election summary here.
This election may support that research, given that both parties are focused on spending rather than trying to solve inflation and supply issues, productivity, and labour force problems that could have a negative knock-on effect on our economy in years to come.
If there is continued weakness in sharemarkets post-election, it is much more likely to be driven by news flow that indicates the effects of inflation on the broader global economy.