Strategy Updates

Submitted by Jim Thesiger on 14 May, 2008 - 15:25

Here is a strategy update on the Budget Impact on Equities provided by Australian market analyst UBS.

Strategy – Budget Impact on Equities

Today Macquarie Research Equities (MRE) reviews the 2008-09 Budget and investigates the impact that the initiatives will have on the Australian Equity Market, and especially on which stocks in particular may benefit. The initial reaction to the Budget is that the significant surplus is neutral to slightly expansionary in the near term but in the longer term it appears to be more expansionary. Click through to read more on the impact on interest rates and which stocks could benefit from the initiatives.

With the expansionary nature of the Budget, the only conclusion that can be drawn is that it will do nothing to address the rising inflation problem and that it will obviously continue to put upward pressure on interest rates.

The Australian equity market is going to be mainly affected by the following key initiatives:
• The establishment of three new nation building funds focusing on education, health and infrastructure will noticeably inject cash into these sectors.
• Withholding tax rates will be reduced over the next three years from 30% to 7.5 % and will benefit local fund projects.
• The tax cuts will be stimulatory, but given the persistent increases in interest rates and petrol prices, MRE do not believe that there will be any substantial increase in current domestic consumption.

Clearly, the beneficiaries from the Budget are going to be the contractors: LEI, TSE, UGL, MAH and WOR. The continual emphasis and pipeline of infrastructure and construction work will allow these stocks to remain in strong positions. Secondary stocks to benefit from construction are ABC and BLD. Withholding tax changes may benefit the growth in offshore funds managed by Australian fund managers – PTM, BTT and PPT.