Election 2016 stock winners are…
Australia goes to the polls tomorrow and the coalition government led by Prime Minister Turnbull is expected to win. As we’ve seen in recent history, polls are not a great guide to the actual outcome. This time last week we were seeing the carnage play out in financial markets following the unexpected Brexit referendum result.
It’s unlikely we’ll see the Labor party win tomorrow, but anything is possible. Our focus is on the stocks that should benefit from a Turnbull return to office. We think the major beneficiaries in the next term of government will be Australian small cap companies, for the following reasons:
– The proposed tax cuts will start from small businesses and then phase into larger businesses over the forward estimate period, based on business turnover. Smaller companies will have their corporate tax rate cut first. Lower corporate tax should in theory boost earnings and in turn increase valuations, especially if the business is expected to generate free cashflow into perpetuity.
– Smaller companies in Australia are usually focused on the domestic market. Interest rates remain very low by historical standards and central banks, including the RBA, are likely to stay open to more cuts. This improves net returns on investment.
– Many of the innovation incentives that the Turnbull government announced last year will actually start kicking in from 1 July. Smaller companies will be able to utilise these to fund their growth.
– The UK’s decision to leave the European Union is still playing out. If there is a quick shift away, the UK could look at expanding its trade and services into Asia and Australia as a Commonwealth Member becomes the most convenient springboard into the region. Smaller Australian companies could benefit from acquisition or corporate activity.
It’s a good time to be looking at Australian smaller companies, which is where our focus has been since June. The market is yet to reprice many smaller stocks, so there is still some time. We have preference for companies outside of mining or energy – still too early to call the bottom there. But we sense the mood is slowly starting to change and we think Invast is ahead of the curve in terms of picking sentiment.
We also recently shared these views, as well as broader economic issues during the week with CNBC. Click here to watch the interview. Remember that our more precise trading calls and suggestions on which small caps to buy is a privilege that only Invast clients have.
If you’re not an Invast client, it might be a good time to get your trading account ready for what is coming. You can self-navigate through our simplified account opening process here.
Chief Market Analyst
Peter Esho is a member of Invast’s Investment Committee and Chief Market Analyst at Invast Financial Services in Australia. The Invast’s Investment Committee constructs professionally constructed global thematic portfolios of Direct Market Access (DMA) CFDs over highly liquid global shares and ETFs through its new PortfolioInvestor platform. Since 1960, the Invast Group has grown to become one of the largest and most successful global brokerage firms, offering state-of-the-art trading technology and unparalleled service catering to all levels of traders.
Invast Financial Services Pty Ltd (ABN 48 162 400 035) is regulated by the Australian Securities and Investments Commission and holds an AFS Licence 438283 which authorises it to carry on a financial services business in Australia.