Monday, Sep 22, 2014
Market boost tipped on poll victory
New Zealand financial markets are expected to firm when they open today after the National Party secured the first ever outright win under the Mixed Member Proportional (MMP) electoral system.
A third term for Prime Minister John Key’s Government was seen as a positive for both the sharemarket and the foreign exchange market, although in the kiwi’s case, any firmness was likely to be short-lived as greater global influences such as a resurgent US dollar came into play.
In the sharemarket, politically sensitive stocks such as the newly-privatised electricity generators had already been firming on the back of National’s strong showing in the opinion polls, but were expected to gain more ground now that the threat of a centrally controlled electricity market proposed by Labour and the Greens had been removed – for the next three years at least. There was also likely to be some relief that the result did not contain any “fish hooks” in the form of last-minute policy compromises with minor parties in order to stitch together a coalition deal.
Specifically, regulation-sensitive stocks such as casino operator SkyCity were expected to gain ground on the back of the emphatic win for National.
Harbour Asset Management portfolio manager and research analyst Shane Solly said the power generators may benefit from the reduced risk of regulation and that more of the same economic policy framework from National would “reduce the risk concerns for some investors”.
“With rate of growth slowing, the New Zealand economy seems to be in a Goldilocks not-too-hot, not-too cold state, which is a useful backdrop for local capital markets,” Solly said.
Mark Lister, head of private wealth research at sharebrokers Craigs Investment Partners, said he expected to see an immediate boost in business sentiment following the election outcome.
“The certainty and clarity of the political landscape should see business leaders reconsider any hiring or investment decisions that may have been temporarily shelved amidst the campaign,” he said.
“A National-led Government is more business-friendly, and the certainty of the status quo will be positive for confidence.”
Mark Lister of Craigs Investment Partners expects an immediate boost in business sentiment.
Sectors to benefit would include the electricity companies, along with those with potential regulatory risk, such as SkyCity, Auckland Airport and Vector.
Other potential beneficiaries were those stocks with high domestic exposures like Freightways, Fletcher Building and Mainfreight, and those with housing market exposures such as Metlifecare, Ryman and Summerset, Lister said.
The electricity sector stocks looked likely to rise as risks receded. Power generators are typically offering yields of 9 to 10 per cent compared with the market average of around 5 to 6 per cent.
“Given the quality of assets across the sector, the highly attractive dividend yields on offer and the operational progress we have seen over the recent reporting season, we should see solid gains as political risks recede,” Lister said.
ANZ Bank senor foreign exchange strategist Sam Tuck said he expected the New Zealand dollar to rally about 30 to 40 pips on the back of the result, but factors such as an improving US economy and a stronger US dollar would be the key drivers in ultimately pushing the currency lower. The currency closed locally on Friday at US81.37c.
Matt Goodson, managing director at Salt Funds Management, agreed the local markets were likely to get a short-term boost from the result, but broader global issues such as rising US bond yields and China’s attempts to combat a slowing economy would emerge as key drivers for the markets in the months ahead.