Federal Mini-Budget 2022/23: Sharemarket winners and losers

• That said, the new Treasurer has cautioned that the darkening global economic backdrop, including an energy crisis in Europe and China’s property downturn, will eventually weigh on demand for Aussie commodities. Domestically, the rapid increase in Aussie interest rates – 250 basis points since May 2022 – and persistent cost of living pressures are expected to eventually curb consumer spending, pushing up unemployment.
• The Budget papers showed GDP growth for the fiscal year ending June 30, 2024 has been downgraded to 1.5 per cent from the 2.5 per cent previously forecast. GDP growth was also downgraded to 3.25 per cent from 3.5 per cent for 2022/2023. The unemployment rate is also estimated to edge higher from current levels of 3.5 per cent to 4.5 per cent by June 2024.

The budget and the sharemarket

• It’s been a difficult year for Aussie sharemarket investors, encountering the strongest annual growth rate in headline consumer prices since the introduction of the goods and services tax (GST) in July 2000, and the most aggressive monetary policy tightening cycle since 1994.
• The S&P/ASX 200 index is down 8.7 per cent so far in 2022 (to October 25), but continues to outperform its regional peers, such as the MSCI Asia Pacific index, which has tumbled by 30.5 per cent over the same period. Relative to their global peers, Aussie shares are benefiting from a more defensive posture, given a weaker Aussie dollar, less inflation risk and a better economic growth outlook.
• Historical data shows that the S&P/ASX200 index has gained on average just 0.2 per cent the day following each federal budget since the year 2000. Investors worrying about a more prudent budget in financial year 2022/23 can be re-assured that big spending budgets don’t always necessarily guarantee a strong return the day after the budget.
• In fact, the S&P/ASX 200 index fell by 0.7 per cent in 2021, following the announcement of significant pandemic-related government spending. And this followed a 1.3 per cent gain in 2020, the strongest lift in 18 years. Earlier this year, the index rose by 0.7 per cent the day after the government’s big spending pre-election budget in March.

• In terms of the potential company and sharemarket beneficiaries of the 2022 mini-budget announced overnight, targeted government spending could primarily benefit mining, housing, climate, infrastructure and child care-related shares. Specific policies and the possible sharemarket impact are detailed below:

• Household spending and population growth: The government will allocate an additional $33 billion over the next four years to pensions and social security payments due to higher inflation. New spending of $935 million has been announced over four years by increasing permanent migration levels. Net overseas migration is assumed to return to pre-pandemic trend levels of 235,000 people from 2022/23 with population growth of 1.4 per cent.
• Consumer discretionary and consumer staples stocks, which includes supermarkets and electronics retailers, such as JB Hi-Fi, Harvey Norman, Premier Investments, Metcash, Coles, Wesfarmers and Woolworths, could be beneficiaries of increased consumer spending.

• Infrastructure: The Albanese government has announced $8.1 billion worth of infrastructure spending, including the Suburban Rail Loop East in Melbourne, the Bruce Highway and other important freight highways such as the Tanami Road and Dukes Highway. Around $2.4 billion to extend full-fibre access to 1.5 million additional premises, including to over 660,000 in regional Australia. Another $250 million will be provided to expand the Local Roads and Community Infrastructure Program. A further $150 million to upgrade regional airports and their precincts. Another $1.9 billion Powering the Regions Fund to support transition of regional industries to net zero. And $1.2 billion to advance regional telecommunications.
• Building materials, residential and commercial property developers, such as Transurban, Adbri, Bluescope Steel, Boral, Brickworks, Cimic, James Hardie, Mirvac and Stockland could be in focus for investors.  

• Housing: The federal government has pledged $10 billion to its Housing Australia Future Fund, which it says will deliver 30,000 social and affordable homes in the next five years. And in last night’s budget, the government announced plans to build one million new homes, boosting investment in affordable housing, through a $350 million investment over five years.
• As detailed above, building materials, residential and commercial property developers could be in focus alongside property-listing firms REA Group and Domain. Housing policies should see a continued investor focus on the ‘big four’ banks – ANZ Bank, Commonwealth Bank, National Australia Bank and Westpac Bank – alongside Macquarie Group and regional banks, such as Bendigo & Adelaide Bank and the Bank of Queensland. 

• Childcare, paid parental leave and families: One of the new government’s key pre-election commitments was to increase access to childcare subsidies for an estimated 1.26 million Aussie families, costing around $4.6 billion. The government will also extend its fully funded paid parental leave from 18 to 26 weeks from 2026, costing $531.6 million. And $1.7 billion to support implementation of the new National Plan to End Violence Against Women and Children.
• Childcare services providers such as G8 Education and educational services firm 3P Learning could be potential beneficiaries of increased spending.   

• Education: The government has announced 480,000 fee-free TAFE and community-based vocational education places with 180,000 of the places available at a cost of $1 billion. And around 20,000 new subsidised university places has been announced, costing $485.5 million for priority and disadvantaged groups. The focus will be on extra degrees in information technology, nursing, teaching, health and engineering.
• ASX-listed IDP Education provides student placement services to enrol in universities, schools and colleges.  

• Jobs: The government has allocated $500.2 million for an additional 1,080 staff over the next four years to deliver government services, including 200 new Services Australia employees, 500 at Veteran’s Affairs and 380 at the National Disability Insurance Agency.
• Online ASX-listed job search engine SEEK could benefit from increased job vacancies.  

• Aged care: $845.1 million this year has been allocated to support the aged care sector after Covid-19, including $810 million to cover the costs associated with outbreaks that occur by the end of the year, and an additional $759.9 million to continue supporting the states in their COVID response.
• Estia, Regis and Japara health care shares could lift on increased spending on aged care.

• Health care: The government has announced $1.4 billion for new and amended listings, including treatments for various types of cancer and growth hormone deficiency in children. The maximum co-payment under the Pharmaceutical Benefits Scheme (PBS) will decrease from $42.50 to $30 per script from January 1, 2023. And $235 million has been committed to commence the rollout of Urgent Care Clinics. There is also $2.6 billion in funding for COVID-19 vaccines and treatments for people who are at risk. And spending on the National Disability Insurance Scheme will lift by $8.8 billion over four years.
• Shares of health care providers Healius, Monash IVF, Sonic Healthcare and Virtus Health will be in focus for investors, with biotechnology companies CSL, Imugene and Telix Pharmaceuticals. 

• Telecommunications: The government will expand full-fibre access to 1.5 million premises by 2025 with a $2.4 billion equity investment in the National Broadband Network (NBN) over four years.
• Heavyweight ‘telcos’ Telstra and TPG Telecom could be amongst the biggest beneficiaries of the government spending, alongside broadband providers Uniti Group and Aussie Broadband.  

• Climate and renewable resources: There’s almost $25 billion in climate change-related spending through until 2030. That includes $20 billion for the election promise to upgrade the electricity grid so more renewable energy can be fed into the system.
• The budget will also include $50.5 million over four years to establish a critical minerals research and development hub. Around $1 billion will be allocated to support value-adding resources projects and $50 million will go to grants for early-and mid-stage critical minerals projects, including the National Battery Strategy and Electric Vehicle Strategy. And $345 million to exempt eligible electric cars from fringe benefits tax and the 5 per cent import tariff.
• The policies could benefit ASX-listed lithium, rare earths and battery-focused companies, such as Pilbara Minerals, Lynas Rare Earths and Iluka Resources. But changes to the electricity grid could affect energy retailers AGL Energy, Origin Energy and APA Group.

• Defence/foreign aid: Funding for defence lifts 8 per cent in 2022/23 and rises to more than 2 per cent of GDP over the next four years. And $1.4 billion in additional Official Development Assistance over four years, including $900 million to increase support to the Pacific region and $470 million to increase support to Southeast Asia.
• ASX-listed companies Austal and Codan are key defence-orientated companies.

• Disaster support: The government has announced the provision of $3 billion in the contingency reserve to meet disaster recovery costs from this year’s floods. It will invest up to $200 million per year on disaster prevention and resilience through the Disaster Ready Fund. And $22.6 million will be spent to address insurance affordability and availability issues driven by natural disaster risk.
• ASX-listed company insurers, include Suncorp, QBE Insurance and Insurance Australia Group.

• Taxation: The budget contains an extra $200-million-a-year funding boost to the Australian Taxation Office for the next four years to extend its Tax Avoidance Taskforce. A tax loophole will be shut down for off-market share buybacks to stop the “streaming” of franked dividends to shareholders under a measure estimated to raise $550 million.
• The crackdown on share buybacks will impact some of Australia’s largest listed companies, including the supermarkets, miners and banks. 

Outlook

• CommSec’s view is that restrained government spending, rising interest rates, soaring inflation and slowing economic growth all present near-term challenges to Aussie shares.
• Shares, however, could provide investors with reasonable investment returns over the medium-to-longer term as valuations have improved due to the sell-off in risk assets in 2022. Inflationary pressures are expected to ease over the next six months allowing central banks to eventually pivot from aggressive to more modest rate hikes, which could be more supportive of shares. But much will depend on corporate profit margins and the company earnings outlook.
• Relative to their global peers, Aussie shares could benefit from a more defensive posture, given a weaker Aussie dollar, less inflation risk and a better domestic economic growth outlook. The ASX 200 index is currently fairly priced and relatively attractive to its global peers. In terms of its current valuation, the forward 12-month Price/Earnings (P/E) ratio is 13 times, while the index has a dividend yield of 4.9 per cent.
• CommSec expects the S&P/ASX 200 index to finish 2022 at around 6,900 points, before lifting to around 7,200 points in June 2023.