Markets love political gridlock and an opportunity to test that theory should arrive as soon as Monday as global equity bourses absorb news of an Australian election in which there is no clear-cut winner.
This is really good news for mining companies like BHP Billiton (NYSE: BHP) and Rio Tinto (NYSE: RTP) because election gridlock puts the controversial mining tax Australia looked to enact in jeopardy.
Australian Prime Minister Julia Gillard, 48, and opposition leader Tony Abbott, 52, will need to broker deals with lawmakers to pass legislation after neither major party won enough seats to form a government in the 150-member House of Representatives, according to Bloomberg News.
Abbott wants to scuttle the mining tax plan and political analysts have said the tax probably cost Gillard’s Labor party the election.
With that in mind there are three ETFs that could benefit from the news.
1) The iShares MSCI Australia Index Fund (NYSE: EWA):
An obvious choice to be sure, but EWA does allocate almost 26% of its weight to materials names. Another 44% goes to financials, which will benefit if they’re able to lend more to mining firms for new projects and equipment.
2) The iShares S&P Global Materials ETF (NSYE: MXI):
One of the Professor’s favorite ETFs, MXI is home to big stakes in BHP and Rio Tinto, so this ETF is in play anyway, but the Aussie election news should be good for a small pop.
3) The IQ Australia Small Cap ETF (NYSE: KROO):
Sure, KROO is pretty new, but with almost 40% of its 99 holdings found in the materials space, KROO is in prime position to benefit on the election news.
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