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Hung parliament to hit Australian markets: analysts
By Madeleine Coorey (AFP) – August 22, 2010
SYDNEY — Australian markets and the local currency are likely to suffer from the country's political deadlock, after the closest election in decades produced a hung parliament, analysts said Sunday.
The political stalemate also means that the centre-left Labor government's proposed tax on the powerful mining sector and its plans to roll out a super-fast National Broadband Network hang in the balance.
"Coming at a time of renewed concerns regarding the global economic outlook, the Australian election outcome will likely add to local investor nervousness in the short term," AMP Capital Investors chief economist Shane Oliver said.
The uncertainty will "likely add to jitters in the Australian share market and in the Australian dollar in the week ahead",
he added.
Oliver said markets would be worried about the possible increased influence of the Greens and less decisive policy making, as well as the absence of productivity-boosting reforms under a minority government.
"Markets traditionally don't like uncertainty," UBS economist Scott Haslem told AFP. "So the market will have to deal with some uncertainty when it opens up on Monday."
In elections Saturday, neither the ruling Labor Party nor opposition Liberal/National alliance won enough seats to govern alone.
Haslem said the Australian dollar would likely fall amid the stalemate, which has seen Labor Prime Minister Julia Gillard and her conservative opponent Tony Abbott battling to win the support of four independent and one Greens MP.
"What is more likely is that you end up with more volatility than you end up with a fundamental move in the currency, because fundamentally nothing has changed (to the economy)," he said.
Haslem said the uncertainty would last until a political solution was found.
Commsec chief economist Craig James said any political uncertainty was "a major negative for financial markets" and created the potential for markets to drift lower.
In advance of the election, Sydney's main share index lost 1.07 percent, or 48.1 points, to 4,430.9 on Friday in line with regional falls.
"In the short term the Aussie (dollar) has the potential to lose ground," he added, saying the currency could lose as much as one US cent after closing Friday at 89.05 cents.
James said China's strong demand for Australian commodities was a key driver of the currency, and this would not change no matter who was in power.
But he added: "You are not going to be making big bets on the currency until you know what's happening either way."
He said the political uncertainty was also unlikely to be paralysing, with companies likely to carry on with "business as usual" as the two main parties, which are both to the centre of the political spectrum, jostle to form a government.
James said most foreign investors would weigh up the facts that Australian interest rates are relatively high and that monetary policy is still set by the independent central Reserve Bank of Australia.
"And we are still going to have a credible economic manager, whether its Labor or whether it's the coalition (in power)," James added.
"It is not as if the Greens are going to be an essential element in the government as well -- if that was the case there would be concern in the financial markets."
Australia's resources-led economy, dubbed the "wonder from Down Under" for avoiding a recession during the global financial crisis, is forecast to grow by 3.0 percent in 2010-2011 and by 3.75 percent in 2011-2012.
Both Labor and the opposition campaigned as fiscal conservatives, promising to bring the budget back to surplus within three years and neither suggesting they would put a price in carbon emissions in the near term.
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