Equity investors can look forward to buoyant sharemarket conditions over the next couple of months, if trading after previous federal elections is any guide.
UBS Securities charted the performance of the All Ordinaries Index for 120 trading days after a federal election for the 23 elections since 1958.
It found there is normally a two-month rally after elections, followed by a three-month pullback and then a further rally.
An expansion in price-earnings multiples usually starts to occur about 80 days after an election.
Among the sectors, resources stocks have tended to outperform after elections, while industrials have generally underperformed and there has tended not be any clear performance trend for financials.
Small caps have tended to outperform large caps.
On the specific issues raised in this election campaign, UBS says; “The market had been pricing Labor’s proposed changes to the capital gains tax discount, negative gearing and franking credits as highly likely.
“Given these policies are off the table for the foreseeable future, we see a material reduction in downside risk to housing and the negative wealth effect on the consumer and economy in the short term,” UBS says.
But in the longer term, UBS says the election result will have limited impact on what it sees as a period of credit tightening.
“We are particularly concerned about the outlook for construction, given the decline in both resi and non-resi building approvals.”