Federal elections occur in Australia every three years — a shorter election cycle than in the US. If an election cycle is counted as the year before an election is held, the year of the election and the year after the election, there does appear to be some interesting results. The best performing years in the share market have been the year before or year of an election. Only once in a 28-year period have we seen the best performance over the three years being the year after an election result. The year after an election result is likely to herald the worst performing year in the three year election cycle. It has been the worst performing year in the three year election cycle in seven out of the 10 election cycles since 1979.
A simply trading strategy where you buy on the last day of April the year before an election and hold until a year after the election would have seen an average return of 29% over the 3-year election cycle. On the other hand, a ‘buy and hold’ strategy would have seen an average return of 26.7% over the election cycle. Since 1979, the trading strategy would have seen $10,000 turned into over $260, 000, while the ‘buy and hold’ would have resulted in just over $190,000 — a difference of more than $70,000.
For markets, it’s not just the question of who wins power but also of stability. A key question is whether we see a majority or minority government. A minority government offering less stability to markets. At the moment, Betfair is paying $1.24 for Labour win, $5 for a Coalition win and $200 for any other party to win. (Source: Betfair, 2pm, Monday 4 March).