Market force to reckon with

Many factors affect your sharemarket investments, including a federal election, writes Anthony Keane

AUSTRALIAN shares have surged almost 11 per cent since their pre-Christmas jitters, shrugging aside the banking royal commission and fears of a global trade war.

Their next hurdle is the federal election, with its potential to hit investors and retirees with tougher new tax laws, and share specialists say some stocks and sectors should do better than others.

Shaw & Partners senior investment adviser Jed Richards said his firm was favouring resources stocks, major banks and global shares. Mr Richards said the royal commission’s final report had “no extra nasties” for the big banks and they had held up a lot better than sectors such as mortgage broking and insurance.

“We see some excellent yields … we are very happy to buy Westpac with a 7 per cent fully franked yield,” he said.

Large mining companies such as BHP, Rio Tinto and Fortescue Metals were generating a lot of cash, Mr Richards said.

“That’s one sector we are keen on, mainly because their exposure is not to Australia – it’s to China and the rest of the world,” he said. “The Australian economy is slow and we do not expect growth.”

Instead, growth was coming from global giants such as Apple and Mastercard, he said.

Baker Young Stockbrokers managed portfolio analyst Toby Grimm said the big banks represented good value despite climbing strongly after the royal commission report.

He said banks’ high dividend yields would look even more attractive if the Reserve Bank of Australia cut interest rates further, as many economists now expected.

However, Labor’s plan to axe franking credit cash refunds for self-funded retirees could put selling pressure on companies that paid high fully franked dividends, such as the banks, Telstra and Woolworths, Mr Grimm said.

“We are being quite careful about it because there is uncertainty – Labor could make adjustments to that policy,” he said.

One potential tweak to soften the blow could be capping the level of refunds to retirees but still allowing them to claim some. Mr Grimm said if Labor won the election, as the polls were suggesting, it was traditionally a big spender in areas of health and education.

“Companies like Sonic Healthcare, Primary Health Care and Ramsay Health Care could be beneficiaries of a more health-focused Labor Government,” he said.

CMC Markets and Stockbroking chief market strategist Michael McCarthy said he did not see politics playing a big role in the sharemarket this year, although Labor plans to change negative gearing and capital gains tax could hit housing companies.

“Politicians take 110 per cent of the credit for good news and zero for bad news,” he said.

Mr McCarthy said Australia’s underlying economic data was “okay”. “There’s no boom and no bust either ,” he said.