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Malcolm and the market

There’s been much written about our new Prime Minister, and what changes we may see under his leadership. For investors, it’s natural to ask whether there are implications for the market, and what (if any) industries are most likely to see changes — for better, or for worse.

Early polls gave reason for optimism; measures of both consumer confidence and economic expectations surged in the wake of Malcolm Turnbull’s ascension. In the business community, the generally accepted wisdom is that the Liberal party are more business-friendly, and that Turnbull will not only be more decisive than his predecessor, but gives the Liberals a better chance of re-election.

However opinion polls and community disposition, like market sentiment, are fickle creatures and improvements are often transitory. Over time, it will be results that determine the ultimate success of the new PM.

Challenges ahead

Turnbull faces a slowing China – with resultant declining commodity prices and waning resources employment. Our terms of trade has been moving in the wrong direction, and the outlook for global economy remains uncertain. The PM has some big challenges ahead.

At any rate, the ruminations and speculations from market commentators — interesting though they may be — are at best a distraction for true investors. They certainly should have little bearing on how one approaches the market.

Throughout our history, there has been virtually no discernible correlation between economic performance and the political leanings of the ruling party. Whether Labor or Liberal are leading ‘Team Australia’, it should make little difference to the broader performance of the sharemarket. There are far bigger forces at work.

It’s true that the different parties currently have a different stance on things like emissions reduction, and indeed the former and current PM also have divergent views. Similarly, there may be differences in regard to healthcare, education and infrastructure spending — and these can absolutely have implications for certain sectors of the economy, and in turn the market.

Pragmatism required

Nonetheless, when facing such uncertainly the pragmatic investor shouldn’t change her approach. Anyone whose investment strategy rests on correctly anticipating the changes of government and the timing and direction of policy decisions is resting on extremely spurious foundations. Further, uncertainty and risk is at the core of investing – no leader or political party can change that.

Regardless of what’s happening in Canberra, it’s never wise to expose yourself to companies that face meaningful regulatory risks or whose profitability depends heavily on the good grace of Government.

Even if you take the view that Government does have a material impact on the timing and severity of the economic cycle, accurately forecasting the timing and severity of cyclical swings is beyond the reach of investors.

Foolish takeaway

As economist Tim Duy said: ‘As long as people have babies, capital depreciates, technology evolves, and tastes and preferences change, there is a powerful underlying impetus for growth that is almost certain to reveal itself in any reasonably well-managed economy.’

And as Australians we are very fortunate to live in a country with a robust and well-functioning democracy, where the major political parties sit close to the centre of the ideological divide. As a nation we entrepreneurial, innovative, creative, hardworking and motivated and there is ample investment opportunity for those that can look past the short term machinations of political and market changes.

I wish Malcom luck and hope he leads with wisdom and vision. But the change at the Lodge won’t affect my approach to investing, and neither should it yours.

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Andrew Page is a Motley Fool investment advisor. You can follow The Motley Fool on Twitter @TheMotleyFoolAu. The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson

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