Do Leadership Spills Move Markets?

Australia has a new Prime Minister, once again the top job was taken through an internal party spill rather than at the ballot box. Of our last 5 Prime Ministers, the majority (Gillard, Turnbull, Morrison) have become PM through internal party politics rather than by the will of the voters.

On the politics, there isn’t much more we can add to the coverage of the last couple of weeks. What we are wondering is, how much does this Australian political theatre affect stock markets?

In theory there are a couple of important ways that these changes will affect markets. The main one, is the uncertainty that constant leadership churn has on policy. Businesses invest based on the policy framework a government is pursuing – for example, a Government pursuing a Carbon Tax will lead to businesses investing in renewable power. Where leaders are changing and policy priorities are changing with them, it creates a more uncertain environment to operate. Think of the uncertainty you would’ve dealt with if you were in a heavy energy using industry in Australia over the last decade.

However, for every policy winner there is a policy loser so the net effect on the overall market shouldn’t be too drastic one way or another. For example, when Abbott beat Gillard in the 2013 election this was a big win for the mining industry and a set back for the renewable energy industry.


So, that’s a long way of saying there isn’t one expected effect of a leadership spill. For example, you can’t just expect the market to fall every time there is a spill. Instead, we’ve pulled out the chart of the ASX200 index (the index that tracks the price of the 200 largest public companies in Australia) and seen how it’s responded to this last decade of leadership commotion in Australia.


  1. Where it all began, Julia Gillard challenges Kevin Rudd and becomes Prime Minister (2010).



  1. Less than two years later, Rudd attempts to take the leadership back. Gillard survives convincingly (2012).



  1. With an election imminent, Rudd narrowly has the support of the party room to retake the Prime Ministership (2013).



  1. Just three months later, the Tony Abbott-led Coalition beats the Rudd-led Labor Party (2013).



  1. Less than two years into Abbott’s Prime Ministership, Turnbull has the numbers to become PM (2015).



  1. In a big week, the Liberal Party had two spills in a couple of days and Australia ended the week with a new Prime Minister.



So what’s our big  takeaway…?


Markets move. Constantly. From those charts it is difficult to conclude that markets care too much about this leadership speculation. There are some examples (like when Turnbull called the first spill on 21 August 2018) where you can clearly see the market reacting to this leadership news. Most of the other examples show markets haven’t moved too much in the midst of this leadership speculation. It appears there are more important things to a business’s success that who is Prime Minister.

As if we needed more proof that long term investing is the way to go, this chart from 2010 to 2018 shows that despite 6 PM’s the Australian market has continued its slow and relentless march upwards.


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