Markets nervous as Australia faces hung parliament

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Reuters:

Australia’s two major parties wooed independent lawmakers on Sunday after an inconclusive election left the nation facing its first hung parliament since 1940 and set financial markets up for a sharp sell-off.

The Australian dollar and shares are likely to slide when trading resumes on Monday, analysts said, with the vote count threatening to drag on for days and both the ruling Labor party and opposition seemingly unable to win a majority.

“The uncertainty is going to be a real killer to the financial markets,” said economist Craig James of Commsec, suggesting the local currency could fall a cent or more.

With 78 percent of votes counted, a hung parliament looked likely, with two possible scenarios for minority government: a conservative administration backed by rural independents or a Labor government backed by one or two Green or green-minded MPs.

The latter scenario is frightening for many investors, with Prime Minister Julia Gillard indicating on Sunday after early talks with independent and Green MPs that she was open to discussing the policies of this disparate group of lawmakers.

Gillard said her Labor party was better placed to deliver stable government, noting that Labor had won more votes than the conservatives. “I think that is a critical factor,” she said.

The independent and Green lawmakers who have emerged from the election stand for everything from higher income and company taxes, in the case of the Greens, to more open government and fewer banana imports, in the case of two independents.
Whomever wins over the cross-benchers and forms government, Australia faces a shaky administration which could fall within 12 months, according to former treasurer Peter Costello.

“It’s quite possible with an unstable situation like this that we could be back to the polls within a year,” he said.

Investors would prefer a minority conservative administration over a Labor-Green arrangement, UBS chief strategist David Cassidy said, noting that conservative leader Tony Abbott had pledged to scrap Labor’s proposed 30 percent mining tax.

The tax on major iron ore and coal-mining operations has weighed on mining stocks such as BHP Billiton and Rio Tinto and the Australian dollar.

“Clearly the market won’t like the uncertainty,” UBS’s Cassidy said, predicting moderate selling. But he said markets would be most concerned about a Labor-Green government, given the Greens also would be strong in the upper house Senate.

“Markets would be uncomfortable with a Labor government with Green assistance,” he added.

PM MEETS GREENS LEADER

Greens leader Bob Brown met Gillard for preliminary talks on Sunday, though Brown said later that no agreements were reached, no policies discussed and no demands made.
He said he was now ready to meet Abbott: “We have repeatedly shown we are very responsible in working with the bigger parties to get good outcomes in positions of balance of power.”

Abbott was due to speak to reporters later on Sunday.

Election experts say both Gillard’s Labor party and the opposition conservatives are likely to fall short of enough seats to form a government alone, forcing them to rely on four independents and a Green MP to take power. For profiles of cross-bench MPs, click on
One Green-minded and center-left independent candidate, Andrew Wilkie, who has a chance to win a lower house seat, said on Sunday he already had taken a call from Gillard but declined to be drawn on which major party he would support.
“I am open minded,” Wilkie told ABC radio, adding he would back the party that could ensure stable and “ethical” government.

Another independent, Bob Katter, a stetson-wearing maverick from the outback, said he would support the party he felt would do more for rural communities and ensure their right “to go fishing and camping and hunting and shooting.”

Independent Tony Windsor said he would be “happy to talk to anybody” when the final results were in, local media reported.
Some of the independents have protectionist views and are outspoken about Chinese investment in Australian resources.

Read more at Australia’s Housing Bubble- Past the Point of No Return

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