Specifically, investors are contemplating how potential changes to tax policy and a mooted increase in the superannuation guarantee to 12 per cent of wages from 9.5 per cent might affect the state of the local market.

In early 2018, the Australian Labor Party announced proposed changes to franking credits, specifically the removal of cash refunds for people who do not receive a government pension or allowance.

Refundable franking credits provide a significant marginal incentive to seek dividend-paying assets. Without the lure of dividend imputation, one argument goes, retail investors have one fewer reason not to diversify into a wider range of equities, jurisdictions and assets classes. Fixed income could be a major beneficiary of this structural shift, as a natural provider of income.

Market sources believe the policy, should Labor win Australia’s general election in May, could affect asset allocation at the margin. The end of refunds of excess franking credits would make shares and hybrids relatively less attractive for low-taxed investors like self-managed superannuation funds (SMSFs).

Roger Knott, senior investment manager, credit at AustralianSuper, argues that the implications are likely to be in the second or third order. However, he tells KangaNews: “This will make a difference at the broader asset-allocation level and will be factored into asset allocators’ decision-making.”

Detail will be important. Removing franking credits is politically risky and many commentators expect an incoming Labor government would be cautious about the pace of a policy rollout. Grandfathering or a staggered implementation could slow any impact on asset allocation.

Chris Trevillyan, director, investment strategy at Frontier Advisors, says: “We understand that franking credits will still be available. It is just that some investors will no longer receive refund payments from tax. Franking credits will continue to be valuable to domestic investors and provide a relative benefit to Australians to invest domestically. Even without franking credits, equities currently provide a significant yield premium to bonds.”

The superannuation guarantee is already planned to increase a further 2.5 per cent from 9.5 per cent, meanwhile, with 0.5 per cent annual increases currently legislated to be phased in starting in July 2021. This means the guaranteed level of superannuation contributions is slated to reach 12 per cent by 2025.

A future Labor government has vowed to increase the guarantee as soon as is practical. Even so, the Australian savings pool will remain in the accumulation phase for many years.

“It is only people under 35 – who have had compulsory super at something close to 10 per cent since they started work – that will be able to retire with balances that should go a long way to funding their retirement,” comments Scott Barker, head of Asia Pacific debt investments at IFM Investors.

“Increasing the super guarantee earlier will obviously increase net inflows earlier and means addition capital. But it will be invested across the portfolio of asset classes and is unlikely to have a significant impact on asset allocation,” Trevillyan tells KangaNews.

However, he continues: “Over the long term, increasing the super guarantee means that the date the superannuation system becomes net cash-flow negative will be pushed out materially later. This could mean an increase in the proportion of assets in debt investments is slower, but the overall scale of assets is greater and therefore the dollars being invested in debt are likely to be higher.”