| CANBERRA, July 10
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.
For full story on the plan
"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
"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
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 .
For factbox on clean-energy stocks, click on
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
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)