Who said our stock market plays follow the leader with Wall Street? You know the old saying: “When Wall Street sneezes, the rest of the world catches a cold”, which is code for telling us that global stock markets, including ours, are largely over-influenced by the Yanks and what they do at the New York Stock Exchange. And nowadays, we should throw in the hi-tech Nasdaq, which resides at Times Square.
Below are two charts for the five days of trading on our S&P/ASX 200 index and the Dow Jones index. Ours significantly is in the red and has fallen quite noticeably, while the Dow has been on an uptrend, which we ignored.
Dow Jones Industrial Average
So for these five days we were watching a leader called Wall Street but were more preoccupied to work out what leader will be in charge of our national Government. It has been a game you could call “follow the leader” and has been like that Pokemon Go virtual reality game that had the country looking for our next leader. Would Malcolm T prevail? Would Dutton win? Could Julie Bishop throw her hat in the ring? And who saw ScoMo come out of left field?
It has been a media thrill-a-minute, which has meant that the stock market has run second place during the biggest and most important week of company reporting. And the focus has been on who will lead this country and what will that choice mean for companies going forward?
Work it out. If Peter Dutton wins, you’d think that would be good for a coal miner such as Whitehaven Coal because he has been a climate change denier and a coal supporter. But the company’s share price has been down 5.7% since Monday. The market thinking could be that if Pete wins this round, then all this Coalition instability means Bill Shorten is a shoe-in to become the next PM and that will be curtains for coal! This is speculation but many investors would agree with this.
This is how the AFR saw the crisis in Canberra this week: “Investors were remaining cautious amid the political turmoil in Canberra, with the prospect of a change of government growing increasingly likely. The most vulnerable sectors on the market were the finance and utilities sectors, who face an uncertain regulatory future under a new government. ANZ recorded the largest dip of the major banks, falling 2.4 per cent to $28.41.”
This week started off with two big issues for the market to absorb. The first was that reporting season had a huge week of show-and-tells, with companies such as BHP, Woolies, Fortescue and many others putting their profits and results out for our perusal. And then there was the positive talk about China and the Trump team scheduling in a pow wow on trade war talk. Asian markets lapped it up but our market couldn’t shake off the uncertainty around who would end up being Prime Minister — Malcolm Turnbull or Peter Dutton?
And by Thursday, talk had Scott Morrison as a possible contender.
Uncertainty is always bad for stock markets but there is also market analysis that says if the Government looks like it has internal problems, it increases the chances of a Labor win at the next election.
The Bill Shorten team has some policies that don’t favour investors and this has been another negative for stocks. If you’re wondering what these policies are, consider these:
• No negative gearing on any future purchased existing properties for investors.
• Halving the capital gains tax discount from 50% to 25%, which affects both property and share investors, as well as other investments.
• Retirees in the tax-free zone, who are not pensioners, won’t get a tax rebate from franking credits.
• Banks are bound to get a more memorable punishment post-Royal Commission from Bill Shorten than they would from Peter Dutton or Scott Morrison.
Undoubtedly, what happens at the expected lunchtime party room meeting today for the Libs, where a new leader should emerge, will have a big impact on the stock market. If ScoMo wins, I’d tip our stock market spikes even though Wall Street is down today on renewed fear about US and China going to war on trade.
By the way, with all our preoccupation with ‘who will lead us?’, we might have missed the fact that the Trump team has slammed tariffs on $16 billion worth of Chinese import-product categories overnight and Beijing instantly returned fire!
CNBC gauged the market impact saying “Caterpillar and Boeing, two bellwethers of global trade, fell 2 percent and 1 percent, respectively. Deere shares also dropped 1.1 percent. Tech shares like Alibaba and Netflix rolled over, giving back earlier gains.”
Given this lead-in to the stock market today, the calibre of the selected PM who comes out of this Liberal Party meeting today will have a big bearing on how our stock market performs.
Do I have an unbiased pick? Yep, I want ScoMo because he has done a good job as Treasurer and he’d be less divisive than Peter Dutton.
Of course, I could be misreading the majority of Australians. Maybe they do doubt climate change and want dams built to beat droughts across the country. And maybe they don’t care about increasing coal mining, which could lower energy prices. And maybe the majority wants less immigration, even though it’s great for economic growth and for creating jobs.
If that’s the case, then Pete getting the top job will work out when the next election comes around.
My biased pick is ScoMo because I taught him economics at UNSW and he’s a very good bloke to boot!
One final point. Who the Libs select should have an impact on Bill Shorten’s desire to reside in the Lodge, but given what we saw this week, I’d bet he and Chloe will be sipping champers tonight and it won’t be local stuff!