Could a Pauline Hanson election victory make your super fund significantly more valuable? It sounds like a strange question, but it may be one of the most important investment debates Australians aren't paying attention to.
This week, Pauline Hanson used her National Press Club address to outline a vision for Australia centred on more mining, more energy production, faster project approvals and less regulation. While the political debate will focus on immigration, culture and social issues, investors may be looking at something entirely different. Their superannuation balances.
Most Australians don't realise that some of the largest holdings inside their super funds are mining and energy companies. Giants like BHP and Rio Tinto feature heavily across the industry, meaning the fortunes of millions of Australians are directly linked to the performance of the resources sector whether they actively invest or not. That is what makes Hanson's economic message so interesting.
Her argument is that Australia has spent too long increasing regulation and focusing on redistribution while productivity growth has stalled. Instead, she wants to make it easier for companies to invest, build projects, employ workers and develop Australia's vast natural resources.
That is one reason Hanson has developed a close relationship with mining billionaire Gina Rinehart, whom she has publicly acknowledged as a source of policy ideas. The bigger issue, however, is productivity.
Australia's productivity growth has been weak for years, yet productivity remains one of the most important drivers of rising wages, company profits and long-term living standards. Hanson is tapping into a growing belief that Australia needs to focus less on dividing wealth and more on creating it by producing more, building more and extracting greater value from the resources it already owns.
For investors, the question is simple. What happens if governments become more supportive of the industries that generate some of Australia's largest profits? Historically, the answer has been higher share prices.
The reality is that markets don't care whether a policy is popular. They care whether it increases profits. If a more mining-friendly and business-friendly Australia leads to higher earnings for some of the country's largest companies, investors will likely reward them accordingly. And, because those same companies are major holdings in Australia's superannuation system, the benefits could extend far beyond shareholders and into the retirement savings of millions of Australians.
What are the best and worst-performing sectors this week?
The best-performing sectors include Materials, up over 3%, followed by Financials, up over 1.5% and Healthcare, up under 1.5%. The worst-performing sectors include Energy, down over 7%, followed by Utilities, down over 2% and Communication Services, down over 1 per cent.
The best-performing stocks in the ASX top 100 include Regis Resources, up over 21%, followed by Genesis Minerals (ASX:GMD) and Greatland Resources, both up over 16%. The worst-performing stocks include Santos Limited, down over 9%, followed by Whitehaven Coal and Ampol, both down over 8%.
What's next for the Australian stock market?
The All-Ordinaries Index delivered a strong performance this week, rising almost 1.5% by Thursday's close and putting the market firmly back on the front foot. More importantly, buyers have once again pushed the index towards the critical 9,200 level, a barrier that has repeatedly capped rallies over the past year. With momentum continuing to build, there is growing evidence that this latest attempt may be different.
The recovery was driven by the market's two most influential sectors, Financials and Materials, both of which bounced strongly and provided the foundation for the broader rally. Equally encouraging was the continued strength in Real Estate. After spending much of the past year lagging behind, the sector has quietly become one of the market's standout performers over the past month despite generally weak conditions across the wider market. If interest rate expectations continue to move lower, Real Estate could become a key driver of the next rise.
Investor sentiment was also supported by ceasefire developments in the Middle East. As tensions eased, oil prices fell sharply, leading the Energy sector to decline more than 7% for the week. While this hurt energy stocks, lower oil prices are generally welcomed by the broader market as they reduce inflation pressures, lower business costs and improve the outlook for interest rates.
In the United States, the Federal Reserve left interest rates unchanged. However, markets interpreted comments from the Fed Chair as relatively hawkish, suggesting rate cuts may not arrive as quickly as investors had hoped. This weighed on US markets and tempered expectations for near-term monetary easing.
Australia appears to be on a different path. Inflation pressures continue to ease, economic growth remains subdued and expectations are building that the RBA could begin lowering rates later this year or early next year. If that scenario unfolds, it will provide a meaningful tailwind for both businesses and investors.
For much of the past year, the Australian market has played second fiddle to its global counterparts. However, with a potential rate-cutting cycle approaching and commodity markets showing renewed momentum, don't be surprised if Australia emerges as one of the strongest-performing major markets over the year ahead.
Good luck and good trading.
Dale Gillham is the Chief Analyst at Wealth Within and the international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of the award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good bookstores and online at www.wealthwithin.com.au.