LAST week's federal budget continues to dominate sentiment in Australia while in global equity markets a renewed round of risk aversion saw share prices fall and riskier bonds sold off.
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In more stable economies it would appear central banks are in no hurry to lift rates hence there has been strong buying of UK, US and German bonds.
Given the stellar performance of equity markets in the past 12 months you could reasonably expect some weakness ahead.
Ultimately, federal budgets have little impact on equity markets but I suspect this one may have a greater impact than expected.
The first impact is that the fiscal responsibility of the budget may prolong the strength of the dollar.
While I still feel the currency will fall from current levels there is no question financial markets generally would applaud Australia's fiscal restraint.
For some businesses I think the currency has to fall from here to help the boost their cyclical recovery, hence this earnings recovery may be pushed out further.
The most stock specific impacts from last week's budget moves will be in health care.
The $7 co-payment for visits to general practitioners, pathology and radiology may lessen the use of some of these services.
At present many patients do not pay for pathology or radiology hence the frequency of visits may be reduced.
This could impact companies like Primary Health Care which has exposure to medical clinics and pathology services.
Sonic Healthcare has much lower exposure to Australia now hence the impact is not as great.
The increase in infrastructure spending is a positive generally.
For a company such as civil engineering outfit Cardno Limited this is good news, but the reduction in foreign aid spending may have a negative impact on its foreign earnings.
Generally I do not think there will be a huge impact on retail spending given most of the major listed retailers are a mix of non-discretionary and discretionary.
It could be argued that the deficit levy will impact retailers like Myer or David Jones but I feel this is debatable.
Ultimately I would suggest the major mover of investment markets will be macro global environment.
Christopher Hindmarsh is executive director at JBWere Private Wealth, email Chris Hindmarsh or telephone, (02) 9325 2639.
