Apr 04, 2025  | Tags: politics, investing

Our insights

Investment markets love stability.

But politics is rarely a predictable beast.

Even in times of little geopolitical tension and a buoyant local economy, a seemingly small government statement can quickly turn investors nervy and splash stocks, sectors and entire markets in red.

More significant economic announcements around policy, or the release of performance data such as GDP, inflation, employment and interest rates tends to have greater impact.

Political unrest and geopolitical shifts can both have seismic effects on market movements.

Here is both how local and global politics shape investment markets.

Local markets

Government policy and regulations

While the trend of many data releases are well anticipated and understood in advance, many political policy announcements come without warning and catch markets off guard. 

There are any number of state and federal policy announcements that can give the markets the jitters.

Tax - Changes in corporate tax rates, capital gains tax and tax incentives can attract or deter investment. 

A reduction in corporate tax rates could make Australia more attractive to both overseas and local investors.

Subsidies and grants - The federal government has given renewable energy companies significant subsidies and grants in line with many western governments. 

This makes them significantly more attractive to investors. 

Regulatory control - Regulations or ‘red tape’ regarding labour laws, business operations or environmental standards can have a negative effect.

It significantly impacts the ease of doing business and send investors running for cover.

Investors seek a stable and transparent regulatory environment.

Political stability 

Frequent change in government policy or direction is confusing to investors and makes them nervous.

Conversely, government investment in infrastructure such as transportation, communication and utilities is attractive to investors and is a boon for the businesses and sectors involved.

Trade policies

Free trade agreements with other nations can open up new markets for Australian businesses and attract foreign investment.

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) was designed to boost trade between the 11 signatories.

This should help Australia forge new investment opportunities with countries such as Singapore, Vietnam, Malaysia and Brunei, having a positive effect on markets.

But changes in tariffs and other trade barriers can affect the competitiveness of Australian businesses and their appeal to foreign investors.

Global markets

Geopolitical stability 

Global political events such as conflicts, sanctions or economic crises can have a domino effect on the appetite to invest at home.

Australia’s markets are intrinsically tied to the political and economic climates of its biggest trading partners, China and the US.

The ASX is so closely linked to the New York Stock Exchange that any significant shift on Wall Street is quickly felt at home.

Markets in Australia, like around the world, dived in February, 2020 as pandemic lockdowns ground business to a halt.

But the ASX suffered much less disruption throughout the Russia-Ukraine war.

While the assassination attempt on Donald Trump had little impact with both US and Australian markets rising slightly in the immediate aftermath.

Economic policies of major economies

Central bank policies in major economies, especially the US and China, can have a ripple effect in Australia by impacting global interest rates and capital flows.

A rise in US interest rates is likely to deter investors from sending their money to Australia, by reducing the appeal of Australian bonds and equities.

Equally, the US dollar has remained bullish in recent times against the Australian dollar which has made our stocks cheaper to buy and hence more attractive to US investors.

Large-scale fiscal policies designed to stimulate growth abroad can influence global economic growth and the demand for Australian exports.

But some foreign policies are designed to protect sovereign interests and have a negative impact on competitive rivals.

On July 18, shares in Taiwanese chip maker TSMC plummeted 2.4 per cent after Donald Trump lamented its market dominance in the US, calling for an American company to fill the void in Defence.

A report the same day that the Biden administration was considering trade restrictions in the sector triggered the NASDAQ’s biggest dive in 18 months.

Environmental and social governance

The ever-increasing global emphasis on environment and social governance (ESG) around the world is having a flow-on effect on investment decisions.

Companies and sectors that align with ESG practices tend to attract more investment.

But policies can change direction quickly with elected governments.

There could be a major shift in the making if the Federal Liberal party wins power and Peter Dutton follows through on his commitment to nuclear energy.

Technological and industrial trends

Global trends and leaps in technology and innovation can influence investment in Australia.

Policies that support and finance research and development help keep Australia at the cutting edge of world innovation.

Global shifts in industry preferences, such as the move towards renewable energy, can direct investment towards specific sectors within Australia.

Get advice today

Equity markets are incredibly sensitive to political developments, statements and policies both at home and overseas, even in relatively stable times.

Favourable trade relations that are the result of consistent and transparent government policies in industries that align with global trends make an ideal environment to attract sustained investment.

Calder Wealth Management supports clients to monitor and consider such events to help them make informed decisions about their own investing and wealth strategy.

CWM are wealth experts who can help you craft a well-balanced portfolio that aligns perfectly with your financial goals and time horizons.

We’ll monitor world events and political influences to ensure your investments remain robust and take advantage of any shift in the economic outlook and sentiment.

We can even act as your financial mentor all the way through to your retirement.

No-one should do without quality financial advice from someone personally invested in their wealth accumulation.

At Calder, we pride ourselves on leading our clients into the future with structure, financial stability and confidence. 

Contact us today to discuss all of your financial needs and concerns.

Written by Jodie Schroeder

The information contained in this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.

Taxation, legal and other matters referred to on this website are of a general nature only and are based on Calder Wealth Management’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.

Calder specialises in wealth management with a focus on advice, investment, sustainability, insurance and finance.