CASHING IN ON A BUDGET BOUNCE
TREASURER Josh Frydenberg’s big-spending, businessfriendly budget produces plenty of sharemarket winners, but analysts and economists say there may be a sting in the tail.
While the budget’s financial boost should quickly flow through the economy, the biggest challenge remains rising inflation, they say.
Cash handouts to pensioners, halving the fuel excise, extra tax offsets, more help for homebuyers and new benefits for business were among the budget changes, which could push inflation – and interest rates – higher.
Tribeca Investment Partners portfolio manager Jun Bei Liu said the biggest stimulatory impact was on consumer discretionary stocks such as JB Hi-fi and Wesfarmers.
“It’s really about buying votes for the time being so it’s very stimulatory,” she said.
“The negative going forward is short-term inflationary pressure. This budget just delivers more inflationary pressure as people spend the stimulus.”
Higher interest rates would dent demand as consumers spent less, and the housing sector could suffer, Ms Liu said.
“We could be looking at a weaker economy in 12 months’ time,” she said.
“The consumer stocks you see having a bounce right now are going to be hit by this environment.”
Investment newsletter Marcus Today’s general manager, Chris Conway, said the people to benefit most from budget handouts were those most likely to buy new TVS and computers.
“JB Hi-fi is one of the consumer discretionary retailers that has managed to cycle really well through the pandemic,” he said.
“They got that big tailwind during Covid and have managed to hang onto it.”
Mr Conway said it was “slim pickings” to find stockmarket losers.
“There was some speculation that the so-called beer tax would be cut – it wasn’t,” he said. This could be a negative for alcohol-related stocks, Mr Conway said, and he also mentioned cuts in sports funding.
“So a company like Catapult – they make the GPS trackers for athletes and provide data analytics – could take a hit,” he said.
“With respect to the budget, the market has much bigger issues in terms of inflation, what the Fed is doing, what the RBA is doing and the war in Ukraine.”
Betashares chief economist David Bassanese said the government’s “showering voters with extra cash to spend over the coming months” added to an alreadystrong outlook for household spending, boosting consumer discretionary stocks.
He said other budget initiatives could deliver tailwinds for healthcare, cybersecurity and cloud computing companies, but he warned the 60 per cent fall in iron ore prices by September – forecast by the budget – would hurt.
“This increasingly seems like an overly conservative assumption, however, due to China’s ongoing strong demand for iron ore,” Mr Bassanese said.
He said the prospect for higher interest rates was the challenge for equity markets.
Commsec senior economist Ryan Felsman said the ASX 200 was “relatively attractive” compared with global peers, but investors should monitor developments with interest rates, Ukraine, the federal election and China.
He said the budget’s spending could benefit consumer, housing, defence and infrastructure-related shares.
“Ampol could benefit from a lower fuel excise, without taking a hit to its margins, as consumer demand for petrol increases,” he said.
Mr Felsman said the government’s expansion of the Home Guarantee Scheme would be good for banks, a $1bn manufacturing package could help CSL and Incitec Pivot, while billions of extra dollars going into healthcare were positive for companies including Healius, Monash IVF and Sonic Healthcare.
He said the S&P/ASX 200 index’s current value near 7500 was within Commsec’s December 2022 target range of 7400-7700.