Reece Birtles
Inflation and whether it is heading out of control or will subside is the main issue for investors today according to Martin Currie Australia, part of Franklin Templeton Group.
Reece Birtles, Chief Investment Officer, Martin Currie Australia says: “As a team we have looked at the impact of the change in government on Australian stocks based on what we know about Labor’s policy positions.
“However, for us, inflation is the main issue. A change in Government is certainly not the cause of this risk, as the pressures on inflation have been building for several years.
“Generally, we don’t see the Labour win resulting in a huge impact on Australian stocks, but it is worth highlighting that the difference in climate/carbon policy with the previous government may have implications.
Labor has pledged for a 43% reduction in emissions, on 2005 levels, by 2030 vs Liberal’s 26-28% target (albeit the Liberals claim this was on track to be exceeded).
“In particular, Labor is targeting 80% of the electricity mix to be renewables by 2030. The ‘Rewiring the Nation’ investment is slated to cost $20 billion, but to boost economy by up to $40 billion. There is also the $3 billion fund to help heavy industry decarbonise and support green energy development. The fine details of the revised ‘safeguard mechanism” that works to cap/force reduction in industrial emissions still needs to be worked through.
“Key questions on this are what level of reduction is targeted and what penalty if not met. Another implication is that energy is going to cost consumers more given ESG inflation, and there is a huge gap between the current market price for energy and what is in the existing budget.”
All of this has varying degrees of impact and benefit on the major industrial emitters and those leveraged to building the transition, understanding that some companies will be both winners and losers here.
Birtles says: “ Despite high emissions, gen-tailers such as AGL Energy should benefit from the Rewiring plan, and engineering and construction companies such as Worley, Downer etc. and financer and energy trading bank, Macquarie, will benefit from building the required infrastructure. The construction of 85 low-cost solar banks could benefit miners, as will the push for so-called green metals.”
Outside of climate/carbon policy, increased childcare funding should lead to increased workforce participation, as should Labor’s pro-training / TAFE stance.
He adds: “This is a plus for consumer spending and will also have a positive impact on the tenants of childcare centres and will provide indirect benefit for the childcare center landlords.”
He further adds: “Labor is supportive of wage growth, and in the short term, any growth in-line with CPI should be positive to consumer-focused company revenue, but magnitude will depend on the ability of companies to pass through costs on the other side.
“Labor is pushing for higher wages in the aged care sector, and this could flow through to other healthcare workforces.
“In terms of the banks, we see a relatively benign impact this time. In the past we would have expected it to have had more impact, but there has been a much less hostile environment between banks and government, and relationships are much better post-COVID.
“We see no obvious new taxes, and the key to banking growth is housing and the general economic backdrop. Labor housing policies do provide a slight boost to housing (demand/prices) but still likely to be overwhelmed by eventual rate rise impact on prices and eventual credit quality concerns.
“Labor hasn’t announced any policies that would impact the private health insurance (PHI) sector (unlike during Shorten years when they were pushing a cap on PHI price rises).
“All in all, we see the impact on ASX-listed stocks as minimal, but we will be keeping a close watch as further policies come to light. We will of course have more information when the new ALP budget is released in October 2022.”
