Tax hike blow for Australian investors could change the market

Añadido: 2026-05-13

[00:00:06][music] >> Well, at moments it seems it's everything everywhere all at [music] once because we've got plenty of international action to look at this morning as well as plenty of local news.

[00:00:19]Starting at the headline level, the Nasdaq 100 down 0.9% in trading overnight. The S&P 500 down down just a little and yes, I of course here in Australia, we were down about a third of a percent. Now, the US pressure has come about because I believe of the CPI release that we saw last night because both the headline and the core levels of inflation were higher than expected. At the headline level inflation for the full year came in at 3.8% above the 3.3% we saw last month and the 3.7% that the market was expecting. And it was a similar similar action at the core level because we saw a reading there of 2.8% above the previous and the forecast. So, that disappointment on inflation did weigh on markets. Perhaps the most notable reaction was in the 10-year bond. It rose by more than four points to be trading at 4.47.

[00:01:18]And that's the highest level we've seen since July last year and completes what some chart chartists would call a rounding bottom on 10-year bond yields.

[00:01:28]And that suggests that there's plenty of room for US 10-year bond yields to move higher. And that fits quite nicely with the idea that inflation is breaking to higher levels. And with the streets of Hamas still closed and no signs of relief in the Middle East, that does seem to be to me at least a reasonable assumption. So, real pressure on interest rates and at some stage it share markets are going to have to reflect that, particularly share markets in the the And we did see some stocks hit hard in trading last night. Qualcomm down 11 and 1/2% last night. Intel, which has been a star after breaking through its 2,000 high, its pre-tech wreck high, fell 7% in trading last night. And even Oracle, despite its popularity with those seeking exposure to cloud businesses, fell by 3.6% overnight. Here locally yesterday, despite a very quiet day in trading, Life 360 after reporting and disappointing fell by more than 11% in trading yesterday. So, some real pressure on those previously glamorous stocks. And one of the reasons for that is that elevated oil price. It's clearly signaling signaling ongoing concern, particularly about that Middle Eastern conflict. Brent trading around the 107 mark towards the higher end of its recent trading range, and clearly flagging concerns alongside that US 10-year bond. So, once again, that rising inflationary environment starting to bite in other markets, but appearing to have little impact on shares so far with last night's pullback only just taking them back from all-time highs.

[00:03:08]We still have plenty of reporting going on as well. We'll hear from Tencent and Alibaba today. Aristocrat, a local reporter, and Tamboran, the prospective gas producer in the Northern Territory, will also report. So, these reports will speak to one of the key themes we've been talking about, particularly Tencent and Alibaba, and that is the valuation advantage that a lot of Hong Kong state tech stocks have over their US peers. But, of course, the big news for Australian investors was the release last night of the Australian government's budget for the coming year.

[00:03:45]And there were some very big changes for investors. And overall, the impact on investors is a negative. We've got higher taxes for investors beginning from July 27 with an ending of the capital gains tax discount for individual investors and instead replacing it with an inflation index calculation that will almost certainly result in higher taxes for everybody when it comes to capital gains. But we've also seen the removal of negative gearing from properties other than newly built properties also from that July 1 start date in 2027.

[00:04:23]So, these will have a big impact on the housing market. Now, the government is forecasting that housing prices will still grow by 2% this year despite these changes. That is an heroically optimistic assumption and the big problem here is in grandfathering negative gearing for properties, the government believes it has given a great incentive for current investors to stay in the market and that is likely to be the case in the short term because the removal of that tax benefit of negative gearing means that those who have it and it's grandfathered will want to hang on to it and of course it disappears once the property is sold.

[00:04:59]So, the thinking here is that that will stop people for selling. The big problem is if we do head into a recession and incomes drop, negative negative gearing is no longer an advantage and that might mean that effectively all investors, property investors, come to the market to sell all at the one time. So, the potential from these changes is that down the track 1 to 2 years time, we might see a property market crash because of a rush to the exit. Something to be aware of particularly for investors very exposed to property. Now, this shift and and the removal of the capital gains tax discount also applies to shares and so, essentially the government has changed the balance between capital gains and income. And that change means that we might see a change in share market behavior. Stocks like DroneShield, Zip, WiseTech, and Telix, which have been bought for growth, might become less popular because of the changing tax on capital growth. And instead, we might see a move towards income. Stocks like Fortescue, Woodside, Rio, ANZ, all passing through larger dividends and franking credits. And franking credits become more important in this environment with the reduction of the ability to offset taxes on income, franking credits remain a way to do so.

[00:06:28]And that might mean that stocks that pay larger dividends and provide them 100% fully franked might well find favor with investors.

[00:06:37]Something to be looking at today, and something our content team have been working on. If you go to the community section, you'll see a number of articles highlighting dividend stocks. And if you go to the platform or the app, you can find dividend listings that show dividend rankings, which show the top paying dividend stocks.

[00:06:58]Something to think about as we contemplate the large changes to the investment environment that the government introduced last night. Um we are seeing a preference for those franking credits, but also it does make the self-managed super fund structure more important because with individuals already having very limited capabilities to manage their tax affairs, a self-managed super fund remains a tax effective way of investing for many Australians. And so something that more even more might consider on the back of these changes to the investment environment. But regardless, it is time to examine investment strategy in terms of these decisions, but also the structures being used to invest because last night the government has introduced a new and what I believe will be a very controversial tax on certain kinds of trusts and particularly family trusts. And it means that the assets in those trusts will be paying at a minimum of 30% tax every year regardless of the beneficiaries and that's a big change in the structure involved that many families use.

[00:08:04]Uh so on first blush I'm not a lawyer nor an accountant but on first blush it does look to me like a lot of family trusts will be unwound, the assets will be distributed because there's no longer any advantage in taking on the higher administrative burden of running a trust because the tax advantage has been taken away. So once again, time to think about strategy investment strategy but also time to think about investment structure in light of the radical changes that were introduced last night.

[00:08:35]So turning to our watch list today, Woodside up 0.75% yesterday but it's up 30% year to date. Having said that, it has fallen since the 1st of April by more than 12% and that fall reflects some pressure on its expansion plans and in particular concerns that the Browse expansion might not go ahead and other fields might not be opened given the strong resistance from environmental protesters and the slowness of governments to clear the way for these major projects to come through. So that weakness reflecting a deteriorating investment environment for Woodside in terms of investing in its assets.

[00:09:18]However, a lot of that has been offset by the much stronger prices for energy inspired by that higher oil price and Woodside once again has been performing strongly in terms of delivering on what it has.

[00:09:31]Perhaps one of the most important aspects is that it will pay an 89 cent dividend uh fully franked uh for the full year of um um 2026. And that might be an a very attractive dividend yield uh given the changes we've seen overnight.

[00:09:48]Uh turning to the US tonight, we've got Under Armour. Uh sorry, last night we had Under Armour.

[00:09:54]Its shares were down almost 17% in trading after its 2026 results missed expectations. Now, the big problem for Under Armour here is that this is the third year in a row that sales have fallen. Uh the net loss announced overnight was just shy of $500 million and the company delivered a weak forecast for 2027 with sales uh forecast to fall once again. It appears Under Armour has fallen into the classic middle company trap. It can't compete against the giants uh that have the scale in this space, the Nikes and Adidas or Adidas of this group. And at the same time, the smaller boutique brands are nibbling away at Under Armour and taking the space that it once occupied. So, that squeeze means that the outlook for Under Armour is pretty grim and we could well see further share price pressure for Under Armour.

[00:10:47]Uh in contrast is Cisco. Uh it's up 0.6% last night, but that might reflect the fact that we have already seen very strong gains in Cisco. It's up 30% year-to-date and is another stock that has just surpassed its 2000 high, that it's its pre-tech wreck high. So, uh an historic moment for Cisco shareholders and a shout-out to anybody who's been holding Cisco since it hit that peak in 2000. Uh we will see the third quarter results tomorrow morning this time. Uh it's estimated that uh we'll see growth in earnings of about 4% on an increase of about 5% revenue to about $15.6 billion.

[00:11:29]Uh it does face strong competition, but at the moment the mania for cloud demand accelerating is or sorry, stocks that have exposure to the cloud demand that's accelerating are in favor and Cisco might gain further support on the back of that current investment trend.