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Australia's closely-fought elections: What's at stake

Wednesday, 4 Sep 2013 | 7:17 PM ET
Australia's Prime Minister Kevin Rudd
Getty Images
Australia's Prime Minister Kevin Rudd

As Australia gears up for its federal elections on Saturday, analysts are mulling how the result, which is broadly expected to be a win for the opposition Liberal-National Party (LNP) coalition, will impact the country's investment landscape.

This year's election campaign has been the longest in Australia's history and perhaps one of the most dramatic, given the return of former Prime Minister Kevin Rudd in late June as leader of the Australian Labor Party (ALP), ousting former PM Julia Gillard.

Although Rudd initially seemed to win back some support for the governing Labor party, Abbott is now seen as a shoo-in to win. So much so that online bookmaker sportsbet.com.au has paid out all bets on the Coalition nine days before the election date, according to media reports.

(Read more: Here's how you can trade Australia elections)

Despite the excitement in the political landscape, analysts expect only a muted short-term reaction in Australia's stock market.

"The coalition is seen as more business friendly, but the prospective boost to business and consumer confidence that the election could bring, may already be factored in," said Shane Oliver, head of investment strategy and chief economist, at AMP Capital, referring to the party's promise of hefty tax cuts, including a reduction in company tax by 1.5 percent.

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Still, many analysts agree the formation of a new government will boost business sentiment in the months following the election, especially given poor sentiment in recent times as businesses held back from investing and hiring new employees amid uncertainty.

"We are about to have a new federal government, which will be the catalyst for a bursting of the domestic investment dam that is full to the brim as a result of everyone waiting to see what happens in the election," said Clifford Bennett, MD of the White Crane Group.

(Read more: Here are other ways to play the weak Aussie trade)

AMP Capital's Oliver pointed out that, on a historical basis, Australian stocks tend to get a boost in the three months following an election.

"What is clear is that after elections shares tend to rise more than they fall. Eight out of 11 elections since 1983 saw the share market up three months later with an average gain of 5.4 percent, which is above the 1.8 percent average three-month gain over the whole period," he said.

While minimal, risks remain

While most analysts agreed the election result would be generally positive for the Australian economy, they flagged risk factors that could derail the positive mood including the potential for a hung parliament, a scenario where no party obtains a significant majority.

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"A hung parliament would be the worst possible outcome for Australia, as the Australian people would face another three years of uncertainty and loss of business and consumer confidence. But the probability of that happening is extremely low," said Chris Weston, chief markets strategist at IG.

(Read more: Beaten down Aussie stocks in for 'winter wonderland')

Indeed, a Galaxy poll published in Australia's Sunday Telegraph over the weekend showed voter support for Abbott came in at 54 percent, while Rudd clocked up 47 percent. That would deliver the coalition 86 seats in the 150 seat lower house, above the 76 seats needed to obtain a majority.

Furthermore, analysts noted that global events in September may be more important drivers for Australia's stock market than the election result.

"Markets are more likely to react to the more pressing issue in the Fed meeting on September 17 and 18, the German election on September 22 and the fact that the Syrian conflict is still simmering away under the surface," said Evan Lucas, market strategist IG. From a market perspective the Australian election is "a non-event," he added.

(Read more: Australia's stock market is on 'fire')

Finally, there remains a risk that if Abbott does secure a win on Saturday, he may not stick to his promises.

"After the initial euphoria of a change in government, they [the Coalition] could take a look at public finances and decide they are [in a ] worse position than hoped, possibly leading to tax hikes or spending cuts, though more likely the latter. This could be negative for sentiment in the short term, though better for the economy in the long term," added Oliver.

—By CNBC's Katie Holliday: Follow her on Twitter @hollidaykatie

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