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How Rudd could move markets

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by Peter Switzer

Kevin Rudd’s resignation has the capacity to move the stock market but in what direction? And in what time frame?

These are two questions worthy of consideration as we brace ourselves for five days of speculation before the ultimate showdown between Prime Minister Julia Gillard and her former foreign minister.

In the short-term, I doubt the threat of a new PM in Australia will affect the market positively, though it could hurt it.

The most recent Deloitte Australia survey of our top company CFOs showed 84 per cent of these key business influencers had no intention of hiring in the next 12 months. They cited leadership problems in Canberra as reason for their insecurity and if this is holding back both investment and jobs, well, what we’re likely to see in coming weeks will amplify this anxiety.

Better politics?

Rudd is bound to lose any early leadership spill battle but if he does well, he will sit on the backbench like a vulture waiting for the right time to pounce. This is exactly what Paul Keating did to Bob Hawke.

Would Rudd bring better policies that could excite the stock market? It’s hard to imagine him making sufficient enough changes to the carbon tax and mining tax to have a big positive impact on the stock market but you can’t rule it out. He will need to differentiate himself from Gillard and last night in Washington when he delivered his resignation he pointed to falling business confidence and so he would have to address this with pro-business measures to justify his challenge.

Early election?

In a quirky way, his expected assault on Julia Gillard could also bring forward an early election, which would play into Tony Abbott’s hands, and would be a bonus for business interests and this could help both material and banking stocks.

Of course, if Rudd wins and the nation embraces him more than they have Gillard, it could bring Abbott’s lacklustre leadership qualities into sharper focus and bring forward a challenge from Malcolm Turnbull. This would not be seen as a negative from a market’s point of view, though telco investors could be spooked at what might happen to the NBN if either Abbott or Turnbull become PM. On the other hand, smaller miners hit by the current mining tax would cheer and their share prices would reflect it.

Bring it on

Given the current malaise coming out of Canberra, which is hurting the economy, getting this leadership battle out of the way has to be a great thing. In the words of Julia Gillard when Tony Abbott goaded her when he became leader of the Opposition: “Bring it on!”

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Thursday, February 23, 2012

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