The government’s bullish inflation projection has garnered mixed reviews; however, professionals generally concur that specific segments of the share market stand to gain, propelled by the budget’s injection of funds.
VanEck’s Russel Chesler believes the budget is “positive” for Australian equities.
“The government’s cash splash will see an additional $24 billion pumped into the economy, and while this isn’t likely to curb inflation, we expect the share market will benefit,” said the head of investments and capital markets.
“We stand by our forecast that the S&P/ASX 200 will reach 8,300 by the end of the year.”
Chesler expects consumer discretionary companies like JB Hi-Fi, which has been seeing softer sales and falls in their share prices, will be supported by the budget cash splash – particularly the energy rebate and tax cuts.
Similarly, AMP’s Shane Oliver said on Wednesday, given the budget is positive for spending, it’s also beneficial to retail shares.
Chesler also expects mining companies such as Mineral Resources, Wesfarmers, IGO, and Liontown to benefit from tax incentives for critical minerals and hydrogen.
“Fortescue, with its green technology, will also benefit from this move,” he said.
Regarding the construction sector, he noted, it, too, should get a boost with the additional $6.2 billion in housing, propelling growth in stocks like Brickworks and Reece.
Sharing his thoughts on the budget, Grant Mundell from Equity Trustees Asset Management said he sees a marginal positive impact on equities, particularly in retail, resources, and housing-related sectors.
“The combination of income tax cuts, rental assistance and energy bill rebates is marginally positive for retail stocks, as the cuts will free some cash flow for some workers. Some of that cash will go on non-discretionary items such as food and beverage and other household costs. However, some people will no doubt spend it on consumer items,” Mundell said.
On resources, he said the “Future Made in Australia” initiatives are positive for renewable hydrogen and critical minerals, though that will be long-dated in nature.
Looking at developers and REITS, he evaluated the housing rental assistance inclusions in the budget as a “marginal positive” but acknowledged that the outlook for rates is more important for this sector.
“There is also $6.2 billion worth of initiatives intended to address Australia’s housing supply. The latter will buoy building-related stocks,” Mundell said.
Mundell also raised the budget’s potential impact on global stocks, noting the likelihood of pre-election budgets globally, which are positive for short-term growth. However, he cautioned that post-election budgets tend to be tighter.
Rate movements uncertain
Reflecting on the Reserve Bank, Chesler opined the budget has increased the likelihood of the next rate change being up rather than down.
While Mundell does not foresee a hike, he assessed that while the cost-of-living relief may lower near-term inflation, the additional fiscal spending and dollars in consumers’ pockets are likely to keep the RBA on hold for longer.
“Additional subsidies and rental assistance over the next few quarters is likely to see headline CPI being held down for longer, lessening the chance of a hike.
“However, the near-term inflation drag for financial year 2025 from the energy subsidy could be offset in the future – financial year 2026 – by the stronger-than-expected fiscal impulse from other spending channels.”
In short, Mundell noted that the budget complicates the outlook for the Reserve Bank, making a return to the inflation target less certain.
