Australian financial markets bet on Monday that inconclusive weekend elections would deliver a change of government, ushering in a new minority conservative rule that would scrap a planned mining tax. Australia looks likely to be in political limbo for at least another week, as the vote count drags on and as the incumbent Labour government and the conservative opposition compete to secure the support of independent and Green MPs.
-- Investors expect conservatives to take power
But as Prime Minister Julia Gillard flew to Canberra and talks with independent MPs, some investors and punters were betting on her demise, driving mining shares higher on hopes that her proposed mining tax would fall with her. "It's a hope and a prayer that things go the right way," said analyst Lucinda Chan at Macquarie Equities, referring to investors' hopes for a conservative government that would mean no tax on mining.
The scenario of a minority conservative government rests on opposition leader Tony Abbott receiving a larger number of seats than Labour, and on assumptions that some of the independents are rural folk whose natural tendency is conservative.
But elections expert Antony Green challenged some of that thinking on Monday when he updated his computer-generated projections for the election result to put Labour and the conservatives would each end up with 73 seats in the 150-seat lower house.
Three independents and one Green MP would hold the balance of power in a parliament where 76 seats are needed for a majority. Bookmakers say the conservatives are clear favourites to form government, with Sportsbet paying A$1.60 for a A$1 bet on the conservative Liberal-National coalition and A$2.20 for Labour.
Though new Green MP, Adam Bandt, has said he is more likely to support a minority Labour government than a conservative one, he and the independents are all under pressure to support the party that ends up with the biggest number of seats.
All the independents have said they are keeping open minds and will want to talk to both leaders of the major parties. The negotiations, though, may not go too far until the final election results are known, which could take a week or more.
"That's when we've got to sit down and make the decisions," pragmatic independent Tony Windsor told Australian television. "No Liberal or Labour party are going to do a deal when they don't know the numbers themselves."
The Australian dollar hit a low of $0.8833 in early trade on Monday, down a cent from Friday's close, in a knee-jerk reaction to the political uncertainty. But volumes were light and the currency recovered most of that ground in the next few hours.
Australian stocks rallied, led almost entirely by miners on hopes that Gillard would fail to form a government, spelling the end of her 30 percent tax on major iron ore and coal mines. The conservatives have vowed to scrap the mining tax. The mining index firmed 0.9 percent on Monday, led by shares in the world's second-largest iron ore miner, Rio Tinto, up 1.3 percent, and the third-largest iron ore producer, BHP Billiton, up 1 percent.
Shares in Australia's largest phone company, Telstra, sank, partly on concerns that Labor's ouster from power would also scupper a deal with Gillard's outgoing government which would have netted the firm A$11 billion ($9.84 billion).
Telstra had agreed to hand over fixed-line assets to the government so they could be used as the backbone of Labor's planned $38 billion national fibre-optic broadband network. Three of the independents held a phone hook-up on Sunday to discuss forming a voting bloc with possibly two extra Green or green-minded MPs joining them in the lower house.
But they are a disparate group, standing for higher income and company taxes in the case of the Greens, to more open government, fewer banana imports, better state infrastructure for rural areas in the case of several independents.
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