Labor's election victory signals stability for Aussie stocks: UBS
Labor’s majority government ensures policy stability, supporting stocks with continued government spending and 2% annual population growth.
Source: Shutterstock
KEY POINTS
- Labor’s majority government ensures policy stability, supporting equity markets with continued government spending and 2% annual population growth, according to UBS
- Fiscal deficits projected at 5.4% of GDP in 2024-25 and 4.5% in 2025-26 will sustain economic stimulus, potentially boosted by RBA rate cuts in 2025
- G8 Education, Arena REIT, and IDP Education are set to benefit from childcare and visa policies, while Mirvac, Stockland, Eagers Automotive, Brickworks, REA Group, and Ventia may see improved activity
- UBS cut its 2025 ASX 200 target to 8,150 from 8,850, recommending insurance and TMT sectors for steady earnings and caution on energy and banks
The Australian Labor Party secured a commanding victory in Saturday’s federal election, defying polls that had predicted a potential minority government.
The clear mandate has buoyed investor confidence, with markets favoring the policy continuity and stability that a majority government brings amid global economic uncertainty.
Policy Continuity Supports Equities
UBS analysts believe Labor’s clear mandate ensures that government spending and population growth will continue to drive equity markets.
Fiscal policy is expected to remain supportive, with deficits projected at 5.4% of GDP in 2024-25 and 4.5% in 2025-26.
Population growth, running at about 2% annually, remains a tailwind, supported by steady visa issuance despite plans to moderate inflows.
Benefits for Specific Stocks
The election result brings targeted but modest impacts for certain companies.
Labor’s push for affordable childcare is set to benefit G8 Education and Arena REIT.
Housing policies offer slight advantages to homebuilders like Mirvac and Stockland, though these are similar to what the Coalition proposed.
The risk of reduced student visa numbers, a concern for IDP Education, has diminished.
Companies such as Eagers Automotive, Brickworks, REA Group, and Ventia, which faced potential slowdowns due to election uncertainty, are now likely to see improved activity.
However, planned tax increases on pension incomes could lead to minor shifts in how savings are allocated.
Market Outlook: Stability Amid Caution
Over the past 50 years, Australian equities have performed well regardless of the party in power. The chart below shows average S&P/ASX 200 returns of 11.9% pa under the Liberal Party and 6.1% pa under Labor.
Source: UBS
The charts below highlight that first-term Labor governments have historically driven strong near-term gains for Australian stocks, whereas second-term Labor governments have often coincided with market declines.
Source: UBS
Post-election, the consumer discretionary sector has historically outperformed, likely reflecting increased consumer confidence and spending driven by policy clarity and economic stability.
Source: UBS
Still, the ASX 200’s path forward will depend heavily on global trade developments, particularly US tariff policies, and the Reserve Bank of Australia’s ability to stimulate consumption through rate cuts in 2025.
Reflecting a cautious stance, UBS recently cut its year-end 2025 ASX 200 target to 8,150 from 8,850, citing global risks and potential earnings downgrades.
UBS recommends focusing on sectors like insurance and technology, media, and telecom (TMT) for their steady earnings, while advising caution on energy and banks due to weaker profit growth
Labor’s resounding win provides a solid backdrop for Australian markets, easing concerns about political uncertainty. While global headwinds remain, the election outcome supports a cautiously optimistic outlook for equities in 2025.
