(Bloomberg) — Shares of Australia’s big four banks surged in Sydney trading, after Scott Morrison’s center-right government pulled off a shock election win, killing opposition plans to wind back tax breaks for property and stock market investors.
Westpac Banking Corp. led the gains, rising as much as 9%, the biggest intraday rally in almost seven years. National Australia Bank Group Ltd. jumped 8.4%, Australia & New Zealand Banking Group Ltd. gained 7.7% and Commonwealth Bank of Australia rose as much as 6.7%. The rally added about A$24.5 billion ($17 billion) to the combined market value of the four lenders.
The opposition Labor party, which was favored to win the election, had proposed reducing tax breaks for property investors, which could have slowed demand for home loans. It also planned to abolish some tax refunds from stock dividends, which may have reduced demand for bank shares that offer some of the highest, most reliable payouts.
“We believe the election result reduces tail risks in relation to credit quality, the mortgage market and the regulatory environment,” Morgan Stanley analysts wrote in a May 19 note. They lifted their price targets for the big four banks by an average 2.5%.
Banks may also have benefited from a view the coalition government won’t enact overly restrictive regulation after an inquiry into misconduct in the financial industry uncovered years of wrongdoing. Labor had promised to fully implement all but one of the inquiry’s 76 recommendations.
“There is a perception that the coalition government will be maybe less stringent on the banks,” said Eleanor Creagh, a Sydney-based strategist at Saxo Capital Markets. “The Liberal coalition’s messaging has been that they’re more for the top end of town than Labor,” she said.
(Adds analyst comment in final two paragraphs.)
–With assistance from Jackie Edwards.
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