Stocks to Watch as Australia Unveils Expansionary Budget

(Bloomberg) --

A raft of Australian equities are likely to benefit from the budget set for release later Tuesday, as the government looks to boost spending to help lift the economy out of its first recession in almost 30 years.

Infrastructure, energy, financial and retail stocks will be among those benefiting from the government's budget plans. Treasurer Josh Frydenberg is expected to announce a A$220 billion ($158 billion) deficit when he hands down the budget, equivalent to 11.6% of gross domestic product, according to the median estimate of surveyed economists.

Stock investors are keenly waiting to see how the measures will support companies after they struggled through their worst profit season in a decade. Australian shares have failed to rally as much as some other regional markets after hitting an eight-year low in March amid restrictions to slow the spread of Covid-19.

Australia to Lay Out Fiscal Blueprint to Generate Growth, Jobs

“Overall we expect a stimulatory budget and we do not expect any austerity measures to be introduced over the next few years,” Gareth Aird, senior economist at Commonwealth Bank of Australia, wrote in a Sept. 29 note. “Australia is not alone and big budget deficits are very much the dominant theme around the world.”

Factors to Watch:

Infrastructure:

• Australia's government is bringing forward an extra A$7.5 billion ($5.4 billion) of spending on roads, railways and bridges. Prime Minister Scott Morrison in a statement Monday said the plan lifts total spending on shovel-ready transport projects to A$11.3 billion and supports 30,000 direct and indirect jobs.
• Infrastructure Australia project pipeline totals about A$67b, fast-tracking A$37b of plans may lift work done by 8%/year over next 5 years: Citi
• Key stocks to watch: Adelaide Brighton, Lendlease, Bluescope, Boral
• NOTE: Oct. 5: Australia Speeds Up Infrastructure Spend to Build Jobs, Economy

Government income support:

• Australia is considering bringing forward income-tax cuts that were scheduled to come into law in 2022 and 2024 to try and boost consumption and stimulate the economy
• The government may also weigh whether to freeze a legislated increase in pension contributions as companies struggle amid the coronavirus downturn
• Prime Minster Scott Morrison has extended the government's wage support program until next year, albeit at a lower rate than it was during the height of the pandemic
• Key stocks to watch: JB Hi-Fi, Harvey Norman, Premier Investments, Metcash, Coles, Woolworths
• NOTE: Oct. 5: Revealed: Budget Tax Cuts to be Backdated: AFR

Financials:

• Australia is planning to make it easier for banks to approve mortgages and small business loans by allowing them to rely on information supplied by borrowers rather than their own verifications
• Key stocks to watch: ANZ Bank, Commonwealth Bank, National Australia Bank, Westpac Bank, Bendigo & Adelaide Bank, Bank of Queensland
• NOTE: Sept. 25: Australia Banks Surge as Lending Laws Eased to Boost Economy

Housing:

• Watch for detail on how home buyers will be supported after Treasurer Josh Frydenberg said in a statement Saturday the First Home Loan Deposit Scheme will be expanded from Oct. 6 to support the purchase of a new or newly built home.
• Key stocks to watch: Stockland, Mirvac, Lendlease, James Hardie
• NOTE: Oct. 3: Australia to Expand First-Home Buyer Assistance to Lift Economy

Airlines:

• Australia will extend its domestic aviation support program until the end of January
• Regional program to now run through until end-March
• Key stocks to watch: Qantas Airways, Regional Express
• NOTE: Australia Government Extends Support to Domestic Flights

Energy & Refining:

• Australia plans to unveil support to build a large amount of onshore domestic diesel storage and introduce a minimum stockholding for key transport fuels, Macquarie analysts wrote in Sept. 14 note
• Separately, the government also flagged plans to help lower energy prices by threatening to directly enter gas/electricity markets, Morgans analysts led by Adrian Prendergast wrote in Sept. 17 note; Also considering expanded gas hub in Queensland state
• Key stocks to watch: Santos, Woodside, Senex, Karoon, Ampol

Health & Manufacturing:

• Manufacturing strategy worth A$1.5b in new funding over forward estimates to help scale-up operators and create jobs
• Plan offers scope for commercializing medicine and medical product developments in Australia
• Key stocks to watch: Cochlear, CSL, Resmed
• NOTE: Oct. 4: Australian Treasurer Says Budget Assumes Virus Vaccine Next Year

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