Markets nervous as Australia faces hung parliament
Sydney, August 22, 2010
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 Labour 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 Labour government backed by one or two Green or green-minded MPs.
In either case, former conservative treasurer Peter Costello said, Australia faces a shaky administration which could fall within 12 months.
'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 Labour-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 Labour-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.
Election experts say both Prime Minister Julia Gillard's Labour 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.
Asked about perceptions of political instability and a possible market sell-off, Gillard told reporters on Sunday she would continue in a caretaker role, as was constitutional convention, until the situation became clear.
'We are a wonderful democracy with very clear conventions as to how all these things work...,' she said.
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.
Both Gillard, who became Australia's first woman prime minister in June after deposing her predecessor Kevin Rudd in a party-room coup, and opposition leader Abbott said the final result could take days to become clear.
Analysts projected around 70 seats for the two major parties, with four independents and one Green MP.
That would be six short of the number Gillard would need to keep control of the 150-seat lower house and mean a hung parliament for the first time since World War Two.
Abbott said that in coming days he would talk to independent members of parliament on forming a minority government. 'The most important issue here is stability of governance,' he said. - Reuters