Guest Contributors

In an extraordinary way, the August 21 Australia election resulted in a hung parliament, the first in the country since 1940. The latest counting suggests the Coalition and Labor have both won 73 seats, short of the 76 majority needed to govern. The Independents have won 3 seats, and the Greens won 1. Both the Coalition and Labor have started courting the non-party winners, and a new government is likely to be formed in 1 week. While the 3 Independents have previous ties with Nationals, a partner of the Coalition, the candidates claim they don’t guarantee support for the Coalition. Considering the dominant lead Labor had just 1 month ago when the Prime Minister set the election date, the “draw” Labor has to deal with now is rather astonishing, regardless if it will be able to woo Independents and stay in power. A ruling party overseeing a booming economy is on the brink of losing re-election – that is Al Gore-esque. This election is crucial, as we wrote in our July Monthly Market Review. Labor’s agenda – including pursuing a new wind-fall profit tax on the iron ore and coal resource firms, will make Australia less investor friendly in the long run. In addition, Labor’s stepped up government spending programs – specifically the proposal to build a National Broadband Network which promises to provide fiber optic cable to Australian residents in 8 years at an estimated cost $43 Billion AUD ($39 Billion USD), will possibly lead to higher interest rates and a crowding out of private spending in what appears to be an overheating economy. Therefore, a Labor victory will likely result in lower Economic Margins for all firms, and subsequently lower valuations and multiples for traded firms, and reduced overall growth for Australia. For US investors, this will ultimately translate into lower Australian strategic allocations for funds invested internationally.