There's speculation that the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) will rise this morning after the business and investor friendly Morrison government won the federal election on the weekend.
The Australian dollar is also likely to get a lift as there's greater clarity on who's running the country and the lack of big changes to policy. We all know how markets hate uncertainty.
But gains on the ASX is not a given and may not stick for a few reasons. Firstly, I believe whoever took government would only make a marginal difference to the market. There are bigger external factors that are more important drivers for our share market – and the signs aren't good.
US stocks fell on Friday with the S&P 500 falling 0.6% and the Dow Jones Industrial Average shedding 0.4%. More significantly, the futures market is pointing to further weakness in US equities when their market reopens later tonight as the escalating trade war between China and the US casts a long shadow over investors.
This could take some of the gloss off our market and the election win by the Liberal-National Coalition could produce a mix result for ASX stocks. Here are some of the impacts:
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Negative Gearing Turns Positive
It looks like the removal of negative gearing for property investments are off the political agenda as the Coalition has said it is opposed changing the tax benefits for investment properties.
This is a boost for stocks tied to the residential property market like property website REA Group Limited (ASX: REA) and could even improve sentiment towards property developers like Mirvac Group (ASX: MGR) and Stockland Corporation Ltd (ASX: SGP), as well as building materials suppliers like CSR Limited (ASX: CSR), even though the change would not affect newly constructed properties.
But these stocks have been under a cloud from the ongoing property slump and any slither of good news will likely be welcomed by investors.
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Franking Credit Changes Dead & Buried
Never say never, but I think all sides of politics won't dare to tinker with the franking credit refund rules after the stunning defeat of federal Labor. Bill Shorten didn't need to and shouldn't have open this battlefront in the election campaign as I suspect it was one reason for his defeat.
The winners are self-funded retirees with an SMSF but there could be losers here too. For one, cashed up companies such as BHP Group Ltd (ASX: BHP) may be less inclined to rush to return capital to shareholders. Many believed that there will be a big cash handout to investors if Labor took office (the rush to distribute franking credits before the rule change), but some of these expectations will need to be unwound.
Meanwhile, stocks like Netwealth Group Ltd (ASX: NWL) and Hub24 Ltd (ASX: HUB) could come under pressure as they would have been beneficiaries of the franking change, which would disallow franking cash refunds above an individual's tax liability.
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Private Insurers Out of Sick Bed
Private health insurers like NIB Holdings Limited (ASX: NIB) and Medibank Private Ltd (ASX: MPL) will be breathing a sign of relief as they do not need to worry about Bill Shorten's threat to limit annual increases to premiums for the sector.
However, medical diagnostic and general practice (GP) services groups may be feeling less upbeat as federal Labor had promised to increase Medicare rebates for the sector. Companies that could be affected include Healius Ltd (ASX: HLS) and Sonic Healthcare Limited (ASX: SHL).
