How the federal election will impact ASX shares: top economist

Liberal-National Coalition vs. Labor. How will the result impact your ASX shares portfolio? One expert breaks it down for investors.

| More on:
A close-up photo of a ballot box with an Australian flag in front of it and a gentleman's hands placing his vote in the 2022 election inside the box

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

With the federal election finally called for Saturday May 21, what does this mean for investing in ASX shares?

AMP Ltd (ASX: AMP) chief economist Shane Oliver analysed what patterns have been seen in the past, and what investors can expect this time.

Consumer and market sentiment around elections

There is a perception that elections cause the economy to slow down as consumers put away their wallets in the face of political uncertainty.

But this stereotype isn’t entirely backed up by hard data.

“There is no clear evidence that election uncertainty [affects] economic growth in election years,” Oliver wrote on the AMP blog.

“In fact, since 1980 economic growth through election years averaged 3.5%, which is greater than average growth of 3% over the whole period.”

But as for ASX shares, Oliver said there is some evidence that the political variability causes them to drift sideways for a while.

And there is certainly no pattern of stocks going in a particular direction after a change of government, regardless of which party wins.

“Based on history it’s not obvious that a victory by any one party is best for shares in the immediate aftermath,” said Oliver.

“Shares rose sharply after the 1983 Labor victory but fell sharply after their 2007 win, with global developments playing a role in both. After the 1996 and 2013 Coalition victories shares were flat to down.”

ASX shares do not perform better because of the choice of party

There is a stereotype that the Coalition is more “business friendly” and would therefore be better for ASX share prices.

And Oliver concedes, since World War II, ASX shares have returned 13% per annum under Coalition governments and 10% under Labor.

But context shows international events had more to do with that than the ruling party.

“It may be argued that the Labor governments led by Whitlam in the 1970s and Rudd and Gillard had the misfortune of severe global bear markets,” Oliver said.

“And the economic rationalist and reformist Hawke/Keating government defied conventional perceptions that conservative governments are better for shares. Over the Hawke/Keating period from 1983 to 1996 Australian shares returned 17.2% pa.”

Not much economic difference this election

Oliver reckons that the 2022 campaign, especially, shows very little difference between the economic policies of the major parties.

Labor was burned from its 2019 experience when a distinctive stance from the Coalition cost it a win.

“In the 2019 election, the ALP offered a radically different policy agenda focussed on a significant increase in the size of government (particularly via more spending on health and education) financed by a significant increase in taxation,” said Oliver.

“Following its defeat at that election, with the tax agenda taking much of the blame, the ALP has adopted a less left leaning agenda going into this election.”

Of course, the irony is that the COVID-19 pandemic then brought on a massive government under the Coalition anyway, with all the financial support handed out.

All this means that a change of government to Labor will not have any impact on where ASX shares would have headed anyway.

“Like the Coalition, the ALP is largely seeking to repair the budget through economic growth rather than austerity and its priority areas of energy, skills, the digital economy, childcare & manufacturing have a significant overlap with the Coalition,” said Oliver.

“So, while there may be a little more nervousness in investment markets about Labor, it’s hard to see a big impact on markets if there is a change in government.”

One huge risk

So it seems the stock market’s fate is not dependent on which party wins the May election.

But Oliver notes that there is one result that could trigger even more uncertainty on top of an already volatile investment environment.

“The main risk for investment markets may come if neither the Coalition or Labor win enough seats to govern, forcing a reliance on minor parties or independents,” he said.

“[This] could force a new government down a less business friendly path — such as the Greens demanding an ALP led minority government implement their proposed super profits taxes – although the Senate may act as a brake on this.”

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

Rival hands reaching upward for a company trophy or prize.
Share Market News

Here are the top 10 ASX 200 shares today

These ASX 200 shares outperformed all their peers on Friday.

Read more »

a woman holds her hands to her temples as she sits in front of a computer screen with a concerned look on her face.
Bank Shares

What’s moving the CBA share price this week?

CommBank shares traded ex-dividend on Wednesday this week.

Read more »

A woman stands on the roof of a city building as papers fly in the sky around her.
Share Market News

Here are the 3 most heavily traded ASX 200 shares on Friday

We take a look at the most traded ASX 200 shares today...

Read more »

Two men in suits face off against each other in a boing ring.

The Aussie-born crypto platform taking on Ethereum

A new platform is being launched by a 25-year-old Aussie millionaire.

Read more »

A woman shouts through a megaphone.
Share Market News

Earnings preview: Here’s which ASX shares are reporting today

Wondering which ASX companies are releasing results on Friday?

Read more »

A happy male investor turns around on his chair to look at a friend while a laptop runs on his desk showing share price movements
Share Market News

5 things to watch on the ASX 200 on Friday

The ASX 200 looks likely to have a decent finish to the week...

Read more »

A group of happy office workers throw papers in the air and cheer after seeing the Latrobe Magnesium price skyrocket 38%
Share Market News

Here are the top 10 ASX 200 shares today

These ASX 200 shares outperformed all others on Thursday.

Read more »

Three male athletes sprint on an athletics track with the sun low on the horizon behind them representing the race between ASX lithium shares to outperform
Share Market News

Here are the 3 most heavily traded ASX 200 shares on Thursday

Our most traded ASX 200 share today is down by more than 5%.

Read more »