Minority govt 'has risks for investors'

Julia Gillard and Treasurer Wayne Swan. Photo / Getty Images

The election of a minority government in Australia carries risks for investors in the nation's sharemarket, according to JPMorgan Chase.

The biggest risk will be pressure on the central bank to raise interest rates if the Government increases spending to accommodate a disparate group of lawmakers that helped it win power, JPMorgan said in a research note. An unstable administration might also lift spending to boost its popularity ahead of a possible fresh election.

"The administration will essentially be in constant election mode, which is not a recipe for tight fiscal discipline," strategists led by Paul Brunker said in the note.

"Higher government spending adds to the potential for interest rates to go into more dangerous territory for consumers and housing demand."

Prime Minister Julia Gillard's Labor Party was forced to negotiate a power-sharing agreement with the Green Party and three independents after losing its majority in an August 21 election. Independents representing electorates outside major cities agreed yesterday to back Gillard in return for A$9.9 billion ($12.6 billion) of investment in rural areas to improve healthcare and education.

Reserve Bank of Australia Governor Glenn Stevens kept the benchmark overnight cash rate target at 4.5 per cent on Tuesday for a fourth month.

- BLOOMBERG