Budget Highlights – Stocks That Could be Impacted

The new budget was released by Treasurer Wayne Swan last night, and they were very much within our expectations, the economy is yet to recover and it is likely to continue until 2010.

Nevertheless, for sharemarket – there are some notable sectors that are worth watching.

On the positive side:

First Home Grant

Extending the first home grant is regarded as a positive sign for property development sectors – which is already seeing return of property buying due to the record low interest rate in Australia, as well as first home grants. This should be positive for property developers, especially those in residential property markets – NSW is set to benefit the most. Some of the major property development companies in Australia include Mirvac, Devine, Stockland, Australand, Sunland and other medium sized property development companies. Companies related to residential properties such as Realestate.com.au, or RP Data may also benefit. It is yet to see if this will also add potential increase in advertising on newspapers and Internet because of the rise in residential property transactions.

A good thing about the extending the first home grant is that it will provide support in the property price. But some analysts are also worried and warning investors or first home buyers should not rush into buying properties, once the first home grant is removed, property price may be under pressure.

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Increase in Pension

Increase in pension was announced, helping the elderly population to maintain their spending level. One sector we think could be benefiting will be sectors that related to pensioners and aging population such as retirement villages – but many of these stocks having their own debt-management issues, companies listed on ASX include Aevum, and Lend Lease and FKP also have retirement related businesses.

Superannuation Cuts

It is still unclear about the Government’s announcement about superannuation and Government’s co-contribution reduction – I think this will have a negative impact for financial related companies, such as funds management companies and investment firms. In the past, a lot of investors have been adding extra superannuation each year in order to receive the co-contribution from the Government. We will wait until more news are coming out relating to superannuation, negative impacts on superannuation industry could impact financial companies such as AMP, AXA, BT and other fund managers. But the overall sharemarket is improving, so the net effect should not be substantial.

Government’s decisions do impact on financial sectors considerably, we have seen that 6 months ago when the Government announced they will guarantee all the bank deposits, there was a massive outflow of investors’ monies from investment funds into bank term deposits, and as the result, a number of fund managers have collapsed.

Infrastructure Spending

Not a surprise, infrastructure spending is a major spending announced by the Government, this is a “Standard Practice” deployed by Governments worldwide, we will see increasing spending on roadworks, new power stations, upgrading infrastructure. Companies likely to benefit are primarily engineering / construction firms, big names in Australia are Leighton Holdings, United Group, Lend Lease and many medium-sized engineering / construction firms that provide services previously to the mining industries. Companies providing skilled workers for infrastructure projects may also benefit such as Skilled Engineering, Service Stream. But the process is a long process, the Government has not announced full details about what infrastructure projects they will be constructing, and it will also involve long tender process, so we will not see impact perhaps until 2010 or 2011.