Will Market Confidence Fall Amid Labor Struggles?

The Labor governments leadership struggles over the past week has fixated the nation. On 22 February, following weeks of reports of tension, Kevin Rudd stepped down as Foreign Minister. The next day Julia Gillard called a leadership ballet and by 23 February Rudd confirmed he would contest the leadership. Opinions polls have shown Rudd to be preferred Prime Minister to Gillard however whom the caucus prefers is still mere speculation.

No matter the victor, many predict the struggle will cause a fall in market confidence. Graham Bradley, the chairman of HSBC bank and Stockland property group, recently stated in relations to the ALP leadership struggle that “changes of leadership are destabilising – they affect consumer confidence and they affect business confidence”.

Goldman Sachs Australian equity strategist Chris Pidcock suggests the political uncertainty must be removed quickly for the sake of the investment climate. Over the past year cases in the United States and Europe have shown that political uncertainty is a deterrent to corporate spending. Pidcock points out “people are unlikely to risk significant levels of capital when the levels of uncertainty are high”.

However, others in the field, such as UBS Head of Strategy David Cassidy suggest current leadership concerns are not as worrying as some have suggested. Cassidy does not believe the situations to be of “market-moving” magnitude.

What do you predict the fallout from the leadership struggle will be, if any?