27/03/2012 - 10:42

Analysis: winds of change blowing through your portfolio

27/03/2012 - 10:42

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If the Queensland election was not an event unique to that State, as seems likely, then it might be time for investors to adjust their portfolios ahead of the inevitable change in Canberra, such as selling renewable energy stocks and buying banks.

It is, of course, never as clear cut as that, if only because of the old maxim about a week being a long time in politics, and a year being an eternity.

Uncertainty that national political change is on the way disregards the stunning size of the loss inflicted on the Labor Party in Queensland and the grim consistency of federal polling.

Today’s Newspoll in The Australian newspaper confirms what insiders have been saying for some time. That the Labor Party, as a business, has damaged its brand and customers (also known as voters) are unsure what they’re buying.

Is Labor a traditional pro-worker party, or an anti-development, pro-environment party, means it is anti-job.

At a primary support level of 28 per cent, according to Newspoll, Labor nationally is within a statistician’s slip of the pen from its Queensland primary voting level of 26.9 per cent. The two-party preferred split is just as devastating at 57 per cent for conservative parties, 43 per cent for Labor.

It is the combination of the Queensland election result, Newspoll, other opinion polls, and the steady rolling back of Labor administrations in other States which ought to have investors doing more than taking note. They should be preparing for change.

The question is what changes can be made ahead of the return of a right-leaning national government.

As a starter list there is one investment class which is utterly doomed by the end of the Labor/Green alliance currently governing the country – renewable energy stocks which depend on government hand-outs, or have been created in the assumption of a carbon tax.

Very few companies experimenting with renewable energy, or actually producing small amounts of it, can yet demonstrate that they are viable businesses. It is highly likely that the cash umbilical connecting them to the Treasury Department in Canberra will be squeezed shut.

The same fate awaits other businesses which rely on generous central government support because of the heavy cost-cutting which always follows a swing from the left to the right in Canberra.

The National Broadband Network is another dead duck if the Queensland political swing hits Canberra, though how to take advantage of the demise of the NBN is an interesting question – perhaps Telstra might make a comeback as the natural owner of the partly installed system, or perhaps it will be carved up an sold separately.

What to buy, rather than what to sell is a more positive approach to portfolio management when a change of national government looms, and that’s when three classes of share start to shine. They are:

  • Banks. A long-time class enemy of all Labor governments for the past 60 years banks have been a punching bag for the Treasurer, Wayne Swan, since he got the job. If/when Swan and his colleagues move to the Opposition benches, the banks will be free to run their business as they see fit, and that means higher profits and bigger dividends for shareholders.
  • Health care and hospital owners. Like banks, this class of company has been hurt by changing government policies, such as recent changes to the Medicare rebate. Restoration of a universal rebate will swell the ranks of the people with private health insurance, and boost the business base of private hospitals.
  • Mining and oil companies. A change of government in Canberra should end the threat of the super-tax on iron ore and coal producers, but more importantly, it will put a welcome mat out for companies planning mine developments. Even uranium companies might find that they are no longer seen as an enemy of the state.

Specific stock tips is not what this column is about. That’s for investors and their advisors to discuss.

However, what a well-read investor with a nose for political change will be doing now is thinking about what’s just happened in Queensland, connecting the dots that lead to Canberra sometime next year, and asking advisers whether they are spotting the opportunities that always flow when power changes.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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