Adviser-to-client template: Impacts of elections on the market
For financial advisers to use with clients.
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Dear Client,
Labor’s election victory is historic. Votes are still being counted, but at this stage, the party will likely secure more than 90 of 151 seats* in the House of Representatives. This is an extraordinary majority; the likes of which Labor has not enjoyed since Bob Hawke’s first term in 1983. Tony Abbott was the last prime minister to command such authority in the lower house, winning 90 seats in the 2013 election.
I won’t dwell on the raw politics of the election. What matters for us and your portfolio is whether political affiliation affects the stock market. After all, this is a thumping victory for a party generally perceived as the less ‘market-friendly’ of the two major parties.
But let’s scrutinise this a little more closely. Does the political stripe of the government matter for equity market returns?
Which Party is Better for Equities?
At a high level, data spanning the last 45 years suggests it really doesn’t matter which party is in power.
Returns have been remarkably similar between the two parties since 1980. Labor governments have presided over an average annual stock market return of 10.85%, while Coalition governments have delivered a nearly identical 10.87%.
When we drill down to prime-ministerial performance, we get more variation. Equities performed best under Hawke-Keating (1983-1996), and worst under Rudd-Gillard-Rudd (2007-2013) – both Labor governments.
But this sort of comparison isn’t really fair. Global forces play a huge role in Australia’s equity market returns. John Howard, for example, presided over a China-led mining boom—an event whose origins and benefits were largely external to domestic politics. Meanwhile, Rudd took office in the early days of the global financial crisis which had an enormous bearing on the woeful stock market performance of his tenure.
Perhaps a better comparison is to judge the performance of our market against global equities. This helps control for broader global forces and brings domestic factors, where the government has more influence, into sharper focus. It’s not a flawless approach—many Australia-specific developments lie beyond political control—but it probably brings us a step closer to the truth. The chart below illustrates how closely Australian equities (in orange) have tracked a global equity benchmark (in blue).
But again, the difference between parties is negligible. Under Coalition governments, Australian equities underperformed the MSCI World Index ex-Australia by an annualised 0.1%. Under Labor, underperformance averaged 0.3%. Given that total returns over the period were nearly 11%, the magnitude of underperformance in both cases is trivial.
The bigger point here is that Australian equity performance has historically tracked global equity performance very closely—casting doubt on how much domestic politics really matters for our equity market [Exhibit 1].
What it Means for Investors
A simple analysis like this can’t conclusively demonstrate a causal link between the party of government and market returns. There are too many confounding factors, and causality can plausibly run both ways: politics may influence the market, but the market, particularly during periods of upheaval, can also influence electoral outcomes.
Nonetheless, I think we can safely infer a few things:
1. The two major parties have similar equity market track records, at least since 1980. While returns have varied widely between individual prime ministers—Labor governments oversaw annualised returns ranging from 16.5% (Hawke-Keating) to 0.4% (Rudd-Gillard-Rudd)—domestic policy alone doesn’t explain these differences.
2. Global events have mattered far more for Aussie equity returns. Our market has closely tracked global benchmarks, and there’s every reason to expect this will continue. Australia is a small, open economy with stable political and legal institutions, making it an attractive home for global capital. Despite comprising only about 2% of global equity markets, Australian equities have delivered near-identical returns to global peers, largely because of our exposure to global cycles, particularly China’s rise.
3. Time in the market matters most. To illustrate, let’s run a simple experiment. Take three hypothetical investors. The first owns the market portfolio only when the Coalition is in power. When Labor takes over, they divest completely and stuff their money under the mattress. The second does the reverse, investing only under Labor. The third stays fully invested at all times.
Starting with $1,000 in 1980, the Coalition-only investor would have $11,426 as of Tuesday, 6 May 2025. The Labor-only investor would have $9,419—the difference largely reflecting time in power (in our sample, the Coalition governed for two more years than Labor). Meanwhile, the investor who stayed fully invested throughout would have amassed $107,624—an order of magnitude more than the two market timers.
It’s an unrealistic example, but nonetheless, a powerful reminder of the miracle of compounding. If you step in and out of the market on political shifts, you risk missing out on the long-term gains that matter most. As Albert Einstein noted – “”compounding is the 8th wonder of the world”.
As always, staying invested, keeping a cool head in the face of sensational headlines, and understanding how portfolio construction is designed for the long-term is key to investing success. If you have any questions about this note or anything else, please feel free to get in touch.
Best,
Adviser
