Banks and health insurers have driven the Australian share market to a near 12-year high after the government’s re-election ended the threat of dividend imputation changes, increased regulatory scrutiny and capped premiums.
Shares in the big four banks surged by between 5.7 and 7.6 per cent, and health insurer gains hit double digits, as investors reacted to the defeat of a Labor party that had promised extra intervention.
The benchmark ASX200 jumped as much as 1.7 per cent to 6,475.5 points, its highest level since December 2007.
The financial sector was still up more than 5.1 per cent at 1310 AEST on Monday, a relief rally even larger than that which followed February’s release of the royal commission final report.
The ruling LNP, which only called the financial services royal commission reluctantly, is perceived by investors to be friendlier to the banking industry.
“Investors won’t need to work through the consequences of the Labor Party’s proposed changes to negative gearing, franking credits and taxation scales,” CommSec chief economist Craig James said.
Fully franked bank dividends would have been less valuable to investors if Labor had intervened on dividend imputation – changes the coalition portrayed as a tax – while the opposition was also seen as more likely to raise the federal banking levy.
Another worry for the big banks had been the impact on the housing market of any restrictions to negative gearing on investment properties, but they can now look forward to proposed assistance for first-home buyers that may stimulate mortgage demand.
“With negative gearing now off the table, the medium-term outlook for housing is a little less negative,” JP Morgan strategist Ben K Jarman said.
“We wouldn’t, however, expect much of an immediate lift.”
With Labor’s threat of a two per cent cap on annual premium increases for the next two years now out of the way, NIB shares jumped 12.1 per cent and those in Medibank Private weren’t far behind at 10.8 per cent higher.
The Reserve Bank must now factor in the LNP’s surprise win and its possible impact on economic growth when it mulls whether to deliver the cut in the cash rate it has implied could be on the way.
“The question is whether the Reserve Bank waits for the ‘natural’ lifting of economic activity post-election or whether it believes that an extra kick along is required,” Mr James said.
Royal Bank of Canada head of Australian and New Zealand FIC strategy Su-Lin Ong said the near-term implications for the RBA over the next three to six months are limited, with the rate still likely to be cut from 1.5 to 1.0 per cent by the end of the year.
“To our mind and given market pricing, the key debate remains whether the cash rate will move sub 1.0 per cent,” Ms Ong said.
The RBA will give an insight to its pre-election thinking on Tuesday with the release of the minutes from its May board meeting.