What Credits Might Do Well Post Election?
The Australian Labor Party has won the 2022 Federal Election. No matter which party you support, some credits will do better than others under the Labor Party’s proposed policies − and historically equity markets have typically performed a little weaker after a Labor victory relative to a Liberal one.
As such, we would advise investors to see if there are any switches needed across their bond portfolio and whether they currently have adequate bond exposure in place.
Chart 1. Impact On Share Market Post Election
* All Ordinaries Index Return
Source: Refinitiv, CommSec
Credits set to do well which have investment-grade and high-yield bonds outstanding:
Industrials (Investment Grade)
- Transurban: As the major player in infrastructure/toll roads it will likely be a potential partner in future road investment, whether it be through investment in their existing roads, unsolicited investment proposals, or future privatisations.
- APA Group: Within the domestic energy sector, APA Group are well placed to facilitate generation, energy transition, transmission, and distribution solutions.
- Incitec Pivot: Funding from the National Reconstruction Fund would help the fertiliser division, which relies on agriculture and farming activity.
- Aurizon: Establishment of a high-speed rail network on Australia’s east coast would likely require connection with intermodal hubs and other respective rail lines.
- Pacific National: Similar to the above, Pacific National would also benefit from a high-speed rail network on Australia’s east coast.
Mining (High Yield)
- Coburn Resources: A global supplier of mineral sands which contain rare earth elements that are the building blocks of objects we use everyday.
- Jervois: A global supplier of cobalt and nickel, which serves both the battery and chemicals markets.
For a start, the Labor Party has pledged that the national emissions target will be cut by 43% by 2030 compared with 2005 levels (and net zero emissions by 2050). This will result in an acceleration of the rollout of renewable energy, cutting taxes to lower the cost of electric vehicles and gradually starting to cut emissions from major industries. Two major new Labor policies will form the basis for this:
- Rewiring the Nation: includes AUD20bn in new electricity transmission infrastructure.
- Powering the Regions: investment in ultra low-cost solar banks, community batteries, and improving energy efficiency in existing industries.
It’s hard to predict what Labor’s position will be on new fossil fuel developments given there is likely to be strong influence from other parties who want a 100% ban. However, early indications are that there will be more pressure on thermal coal as opposed to metallurgical coal developments, which will impact the degree of negative sensitivity for thermal coal-related credits.
In transport, Labor has proposed removing taxes and duties on electric vehicles to make them cheaper. Labor will also take steps to establish a high-speed rail network on Australia’s east coast. Labor’s policies in agriculture and farming, including a pledge to set aside AUD500m from its National Reconstruction Fund to help the sector diversify and enter new markets, will be well received.
Chart 2. Recap of Key Labor Policies
Source: 4D Infrastructure