What does the ALP's election win mean for the ASX200?

Research
Tony Sycmore
By :  ,  Market Analyst

As both polling and betting markets correctly predicted (this time), the Australian Labor Party (ALP) has claimed victory in the 2022 Federal Election, returning to lead the country for the first time in 9 years.

After learning from the "shock" loss of Bill Shortens ALP in the 2019 election (Shorten proposed controversial reforms to negative gearing, capital gains concession and the treatment of franking credits), the economic platform of the 2022 ALP was similar to that of the coalition.

In this sense, the immediate impact of the ALP's election win for the ASX200 is that it removes the uncertainty of a possible hung parliament, as we outlined last week here. In more normal times, this would add about +3% to the value of the local bourse, with the energy sector a primary benefactor courtesy of the ALP's focus on renewable energy.

However, given the challenging macro backdrop in place that includes aggressive central bank tightening cycles, quantitative tightening, cost pressures, supply disruptions, recession fears, and the war in Ukraine, a more muted reaction is possible

Additionally, because the economy is exiting the ultra-loose monetary and fiscal policy settings of the past two years against surging inflation, the incoming government will be constrained by what additional support they can offer to households reeling under cost of living pressures.  

That said, it's easy to lose sight of the economic positives that have emerged post the pandemic and which the ALP has inherited. Australian labour force data released last week showed the unemployment rate fell to 3.9%, the lowest level since the 1970s, and household balance sheets are still in good shape.  

Over the past fortnight, the ASX200 has followed our road map to perfection. From our 7000/6950ish downside target, the rebound in the ASX200 last week reached our upside target at 7200.

With the uncertainty of a hung parliament removed, I expect to see the ASX200 open up ~30 points this morning with a good chance of a relief rally towards 7300/50, providing Wall Street behaves itself in the interim.

ASX200 Daily Chart 23rd of May

Source Tradingview. The figures stated are as of May 23, 2022. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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