August 22, 2010 / 12:14 AM / 9 years ago

Markets nervous as Australia faces hung parliament

MELBOURNE (Reuters) - Australia’s two major parties wooed independent lawmakers on Sunday after an inconclusive election left the nation facing its first hung parliament since 1940 and set up financial markets for a sell-off.

Australia's Prime Minister Julia Gillard speaks at a news conference in Melbourne August 22, 2010. REUTERS/Mick Tsikas

The Australian dollar and shares were likely to fall when trading resumes on Monday, analysts said, with the vote count threatening to drag on for days and both the ruling Labor party and opposition seemingly unable to win a majority.

“The uncertainty is going to be a real killer to the financial markets,” said economist Craig James of Commsec, suggesting the Australian dollar could fall a cent or more.

With 78 percent of votes counted, a hung parliament was most likely, with two possible scenarios for a minority government: a conservative administration backed by rural independents or a Labor government backed by Green or green-minded MPs.

The latter scenario is frightening for many investors, with Prime Minister Julia Gillard indicating on Sunday after early talks with independent and Green MPs that she was open to discussing the policies of this disparate group of lawmakers.

“It’s my intention to negotiate in good faith an effective agreement to form government,” said Gillard, adding her Labor party was better placed to deliver stable government and noting that Labor had won more votes than the conservatives.

Conservative leader Tony Abbott also met some crossbench MPs on Sunday. “I have spoken briefly to each of the three incumbent independents. I don’t want to pre-empt the discussions that I expect will be held over the next few days,” Abbott said.

“I intend to be very pragmatic, but within the broad policy parameters we discussed during the election,” Abbott told reporters in Sydney.

The independent and Green lawmakers who have emerged from the election stand for everything from higher income and company taxes, in the case of the Greens, to more open government and fewer banana imports, in the case of two independents.

The Greens party, which is also set to win the balance of power of the Senate, will certainly push for action on climate change, with Labor postponing its carbon emissions trading scheme until 2012 and the conservatives opposing a carbon price.

“The minimum for climate change is to take action, to get something under way,” said Greens leader Senator Bob Brown. Brown has earlier suggested an interim, fixed A$20 a metric ton carbon price ahead of a full-blown emissions trading scheme.

Treasurer Wayne Swan sought to reassure markets that the caretaker Labor administration could provide stability until a new government is formed.

“The investment and broader community can be assured that Australia’s economy is among the strongest in the world, with a stable financial system and world class regulators who have served both sides of politics very effectively,” he said.

MARKET BRACED FOR SELL-OFF

Investors would prefer a minority conservative administration over a Labor-Green arrangement, UBS chief strategist David Cassidy said, noting that conservative leader Abbott had pledged to scrap Labor’s proposed 30 percent mining tax.

The tax on major iron ore and coal-mining operations has weighed on mining stocks such as BHP Billiton and Rio Tinto and the Australian dollar.

“Clearly the market won’t like the uncertainty,” UBS’s Cassidy said, predicting moderate selling. “Markets would be uncomfortable with a Labor government with Green assistance.”

Greens leader Brown met Gillard, who ousted former Prime Minister Kevin Rudd in a party coup in June, for preliminary talks on Sunday, though Brown said later that no agreements were reached, no policies discussed and no demands made.

He said he was now ready to meet Abbott: “We have repeatedly shown we are very responsible in working with the bigger parties to get good outcomes in positions of balance of power.”

Election analysts said both Gillard’s Labor party and the opposition conservatives were likely to fall short of enough seats to form a government alone, forcing them to rely on four independents and a Green MP to take power.

One Green-minded and center-left independent candidate, Andrew Wilkie, who has a chance to win a lower house seat, said on Sunday he already had taken a call from Gillard but declined to be drawn on which major party he would support.

“I am open-minded,” Wilkie told ABC radio, adding he would back the party that could ensure stable and “ethical” government.

Slideshow (11 Images)

Another independent, Bob Katter, a stetson-wearing maverick from the outback, said he would support the party he felt would do more for rural communities and ensure their right “to go fishing and camping and hunting and shooting.”

Independent Tony Windsor said he would be “happy to talk to anybody” when the final results were in, local media reported.

Some of the independents have protectionist views and are outspoken about Chinese investment in Australian resources.

Additional reporting by Rob Taylor in Melbourne, James Grubel and Michael Perry in Sydney; Editing by Alex Richardson

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