CANBERRA, July 10 Australian retail and clean-energy stocks are expected to be among the winners, and airlines and miners among the losers, from a carbon-reduction plan unveiled on Sunday, but markets overall are tipped to take the policy in their stride.
In announcing its blueprint, the government sprang no major surprises, prompting analysts and fund managers to say they expected some weakness but no dramatic fallout in stocks and bond markets, and only a tick-up in electricity prices.
Caution, though, is expected to dominate sentiment when markets reopen on Monday, given some key policy details have yet to be fleshed out and some key exporters, such as miners and the gas-export sector, complain that the plan threatens investments.
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"You couldn't imagine that foreign investors would look at the situation and say they are more inclined to invest in Australia as a result," said Craig James, chief economist with Commonwealth Securities.
"They are more likely to stay on the sidelines or wait until it's fully implemented. It's a negative for the share market ... because you are inducing uncertainty and change."
The local stock market is headed for a weak session on Monday in any case, after a fall in U.S. shares and global commodity markets on Friday.
Retailers such as JB HiFi , Harvey Norman , Myer and David Jones should outperform the wider market, given the government has sweetened its carbon-tax proposal with income-tax cuts and increased welfare payments, said David Liu, research head for ATI Asset Management, which has A$600 million in assets under management.
"You might expect the discretionary consumer stocks to relatively outperform on the back of the tax cuts," he said.
The clearest winners should be the Australian market's small band of renewable-energy stocks, given that the government announced the creation of a A$10 billion ($10.8 billion) clean-energy fund to finance clean-energy projects or technologies.
Listed clean-energy stocks include wind-power firm Infigen Energy and those with exposure to wind projects such as Transfield Services Infrastructure Fund and Viridis Clean Energy . Major generators with large renewable-energy investments include Origin Energy .
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Overall, analysts expect the plan, which entails a A$23-a-tonne tax on carbon emissions from mid-2012, will trim annual earnings per share for most major listed businesses covered by the scheme by 2-5 percent, though airlines are estimated to be the hardest hit with double-digit EPS reductions.
In the run-up to Sunday's announcement, investment banks JP Morgan and Deutsche had estimated average EPS reductions of more than 15 percent for Virgin Blue and around 10 percent for Qantas , assuming a carbon tax of A$25 a tonne.
"Our transport analysts are of the view that airlines will struggle to pass on the full cost of carbon in ticket prices. So the impact will be quite hard for them," said Tim Jordan, environmental markets analyst with Deutsche Bank.
Coal miners will be taxed on "fugitive" methane emissions from their mines but analysts did not see any major profit impacts. Methane is a powerful greenhouse gas.
Research suggests modest EPS impacts overall, with domestically focused coal miner Macarthur Coal feeling the pinch more than diversified miners Rio Tinto and BHP Billiton .
UBS mining analyst Glyn Lawcock said the tax was unlikely to lead to a re-rating of Australian coal mining stocks, citing the government's estimate that the carbon tax would add only around $2 a tonne to coal miners' average production costs.
"In general, it's not going to lead us to refine our estimates materially at this stage," Lawcock said.
A carbon tax could also hurt gas-exporter Woodside Petroleum because it will apply to emissions from the liquefaction process. The tax threatens to raise the cost of liquefied natural gas (LNG) projects, with Woodside's $15 billion Pluto project already behind budget and timetable.
Electricity prices have largely priced in the carbon tax and are unlikely to jump on Monday, traders said, although they stressed power prices were extremely volatile and vulnerable to other factors such as plants going offline and the weather.
Traders did not expect the market to price in the full tax until the government's proposals cleared parliament, expected by October if there are no major political hitches. They estimate futures prices for the second half of 2012 to rise by around A$4-A$6 a megawatt hour once the tax becomes law.
The closure of some of the nation's dirtiest coal-fired power stations in the coming decade, which is envisaged in the carbon-reduction plan, is also not seen as causing an immediate spike in power prices. One of the dirtiest, Hazelwood, is owned by London-listed International Power .
"I expect the carbon-impacted contracts in 2012 to lift slightly tomorrow off the confirmation of the starting price," said Connell Burke, senior power trader with Westpac bank.
"It still isn't certain that the legislation will come in so I wouldn't expect a large rally." ($1 = 0.930 Australian Dollars) (Additional reporting by Sonali Paul in MELBOURNE, Ed Davies and James Regan in SYDNEY and David Fogarty in SINGAPORE)