Despite all the polls suggesting a Bill Shorten led Labor party would romp to victory in the just completed Federal election, Scott Morrison retained the Prime Ministership, with the Coalition looking like they will be able to form a majority government.
The result, whilst unexpected, has so far pleased the markets, with the ASX, and banking stocks in particular, enjoying a solid rally in the first two trading days of this week.
This short-term (and we want to stress short-term) reaction was entirely to be expected, as a Labor loss has allayed the fears of many investors in both the Australian property market, and the Australian share-market.
This is because Labor’s proposed changes to franking credits, negative gearing, and capital gains tax, are all now confined to the dustbin of history.
Whilst this has undoubtedly come as good news for some (the mood at the recently completed Australian Shareholders’ Association National Conference, of which we’ll write more about next week, was one of jubilation at the result), it’s important that investors look past the noise of day to day market moves, and keep an eye on the big picture instead.
And this big picture is entirely unaffected by the events of the weekend, and like it has for the last fifteen plus years, continues to support investing in tangible discreet assets like pink and blue diamonds.
Why do we say nothing has changed?
It’s simple really – and it all comes down to the fact that, despite the election result, the Australian economy (which has been run by the Liberal party for the last few years), remains incredibly weak.
The best evidence on this was seen on Tuesday, when the Reserve Bank of Australia all but guaranteed interest rate cuts are coming. The RBA always has to be somewhat cautious in how it communicates with the market, but Phil Lowe, the current governor, stated that when the RBA meets in June, it “will consider the case for lower interest rates.”