With Federal Election just around the corner on 18th May’19, the debate on who’s going to win and what impact it will have on the Australian Stock Market is heating up. However, investment titans have warned that this may be as good as it gets, and are already preparing for what they see as the inevitable downside with ASX hovering close to a11-year high. Some companies have already suggested that election uncertainty may be affecting spending in 2019. However, the same regarding the effect of elections on economic indicators is mixed and there is no clear evidence that uncertainty effects economic growth in election years.
Another hot topic in this election season has been the Franking Credits. If the Labor wins and its proposal come into effect, franking credits will still be used to reduce tax payments, but the proposed changes would mean that taxpayers will no longer be able to obtain cash refunds for excess credits if they exceed tax liabilities (currently equating to a full refund for investors with no tax liability).
However, the policy will only apply to individuals and superannuation funds, and not to bodies such as registered charities and not-for-profit organisations. Union bodies, as registered charities, have effectively been exempted. The older independent investors may be most exposed – as they are most likely to receive franking credits in the form of cash refunds, which then contribute to their income stream. Retirees with SMSFs are likely to be impacted in a similar way. The SMSF Association estimated that it will cut around $5,000 of income from the median SMSF in retirement phase earning around $50,000 per year in pension income with a 40% allocation in Australian shares.
As highlighted by our analysts in the recent past, going by the stock market history, there has been a crash every 10-years and the last one took place in 2008. Although we have already experienced instability in the markets late last year but we cannot afford to be carefree thinking that the storm has passed. And, the current developments of election season, markets at 11-year high, proposal to remove franking credits are all ingredients that could trigger a downturn. Our analysts reckon that there may be another major market correction likely to get in motion sooner or later, so, it is wise to tread carefully as markets are at an all-time high and book profits on your stocks that have already registered decent growth instead of waiting for higher returns.
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