Tuesday 19th September 2017
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A personal view
This election is the most surprising that I can recall in my lifetime.
The major surprises have been:
- John Key’s resignation
- The decision to call a relatively early election (spring has hardly sprung)
- The Jacinda Ardern’s rise and rise
- The low impact of Winston Peters
- The collapse of Peter Dunne
- The Naivety of the Green Party
- The size and the number of the promises from all parties.
- The way that all financial markets have generally “taken it in their stride”
- The widespread interest in the election
- The solid way Bill English has “ kept it together “. He looked very shaky early on, but he has lifted.
I think we have at least 1 more week of surprises.
Expect the unexpected in the next week and maybe for 6 weeks. We may have recounts, coalition talks and deals, and even maybe a scandal
All in all, this is our democracy as we have structured it.
N.B. For the Biggest surprise of all see below
The Group I own and manage includes Financial analysts, Financial Advisers and Investment Bankers.
We have been thinking about how the people’s choice may affect markets.
These are my personal views and they should not be taken as financial advice.
Discuss the contents with a professional adviser, before making any investment decisions.
1.0 THE HOUSING MARKET
It appears that the over-hyped part of the sector is now under some pressure with reducing volumes and values.
The impression is that we are past the peak. It is only a question of how much money will flow still into this sector from offshore.
There still appears demand for the lower end by investors. Owners are still locked out because of financial constraints (no deposits and limitations created by LVR’s)
Currently, there are rumours of impending failures of a number of large house builders.
This could change the housing sector in a very dramatic way (mortgagee sales, unfinished houses, deposits lost etc.). Watch carefully !!
2.0 THE CURRENCY MARKETS
- Generally, uncertainty is seen as an additional risk.
- Higher risk causes flight.
- Flight means the currency drops.
- Watch for matters that will cause uncertainty.
3.0 INTEREST RATES.
NZ has a very transparent Reserve bank Act. Generally, the movements in interest rates are well telegraphed. The NZ financial policies and procedures are well documented.The last 3 finance ministers have not really been “ Finance Guys. “ The system has stood up irrespective of their lack of knowledge.
The issues come with other Departments and their demand for spending or concessions. Immigration or Health etc. can cause more impact on the economy and the Treasury than the Minister Of Finance.
The major impact on interest rates will be:
- If there is uncertainty and a run on the NZ Dollar and/or
- If governments need to raise significant capital.
- If there is international uncertainty or liquidity pressures
In these situations, we may see the interest rates move up quickly.
THE IMPACT ON MARKETS OF EACH PARTY
IF NZ FIRST IS INFLUENTIAL
It will be able to force its Whangarei Port plan and there will be significant impact namely:
Strong housing demand in Northland.
Maritime Marine Holdings the owner of the Port (MMH), could be a significant winner. It has already had strong price growth. Price up from $3.35 to $5.35 in 1 year.
Infrastructure upgrades (Rail, roads etc.) north of Auckland.
The Building supply companies will perform very well.
The road builders, Fulton Hogan will perform well
Auckland may see a reduction in pressure on its facilities.
NZ First has been vocal on immigration, however, we believe this will have a minimal impact after the election, as the economic benefits of immigration are necessary to pay for the promises made.
IF LABOUR IS INFLUENTIAL
There will be more spending on housing for the lower income.
Supply of lower-priced housing will increase.
The demand for rentals will ease.
The minimum standards of accommodation for rentals will increase.
We expect some larger projects to be considered.
Immigration at the unskilled level will be reduced.
Demand for some private education facilities will reduce.
Price pressure across the full range of the houses will reduce.
Prices on associated properties will stabilize and parties such as Retirement Villages may be affected by the reduction in revaluations i.e. profits may reduce because revaluations will reduce.
The farming sector will be hurt as various charges /costs are levied and as there may be a rollback of some “trade Agreements” e.g. Korea, TPP etc.
Petrol/carbon taxes may affect road users e.g. MFT, FRE, FLI, also ZEL.
Note, Labour has recently stated that its new taxes will now not come into force until after the 2020 election. If you believe the latest statements you would put less weight on the impact on farmers.
IF NATIONAL IS INFLUENTIAL
We will see a steady progress of the economy in the current direction, with the distortions continuing and maybe becoming more extreme.
This will include slow housing growth, strong immigration flows, slow progress on environment and social issues. Progress towards “free trade agreements“ e.g. TPP, which aid the primary producers, but which impose obligations on other parts of society.
The construction sector will continue to grow e.g. Fletchers Building (FBU), Steel & Tube (STI) are well placed to take advantage of this. There will be an investment in Roads and motorways. Fulton & Hogan will benefit.
The engineering and consultancy sectors will make significant income.
There will be Public-Private Partnerships (PPPs) with some new public issues to fund them either as Bonds or equity raisings.
The debt issues will continue with Bonds being raised, so organizations can grow and the Banks can keep within their lending limits.
There will be more NZ assets sold to overseas parties. (UDC is close to completion).
The growth in value of Listed Property Trusts and Retirement Villages will continue. These sectors earn well over 50% of their income from property revaluations.
There will be only minor steps in the environmental sectors.
IF THE GREENS ARE INFLUENTIAL
Their stated objectives relating to environmental issues may affect parties such as :
Fish Farming companies (NZ Salmon NKS).
Mining/resource companies (NZO, NTL etc.).
The socially owned assets of roads, buses etc. plus electric cars, vans etc. will be a focus.
Social & Green housing will be a focus. We will see the minimum standards for rentals and new builds raised. The building sector will get a boost, but costs will be higher and there will be more grants, subsidies etc.
The major factor for the Greens is that their power and influence has reduced dramatically in the last 2 months. They will be more supportive of Labour and they will have less “ bottom lines “ than previously.
We are all expecting a spending spree on housing, roads etc.
The points of difference are quite minor.
Now that Labour has deferred the tax matter, it reduces the points of difference.
THE BIG ISSUE
The issue is the one we all face every day in our lives
“ Is it time for a change? “
I do not have a view only the people know that
Would this be the biggest surprise of all !!
It is just a possibility, but
Maybe the deal has already been done, irrespective of the outcome.
Why would you deduce that?
2 major issues have disappeared:
- Winston's Super and
- Bill's texts.
I am not a member of any party, nor have I ever been.
I am a supporter of good government and I believe the moderate right gains the best for the people over time.
Extremes are always the problem.
I analyse companies, organisations and people for a living.
Most of the time it is financial analysis, however, I analyse sports teams, Boards of Directors and sometimes politics.
I have been working in the financial markets for over 30 years
Remember, this is just one man’s view!!
I welcome feedback!
I am looking forward to a surprising week.
Do not use the above in any financial decisions.
Check with your adviser and take financial advice.
King Capital & Investment Corporation Ltd
And all subsidiaries.
Contact me on Brent.king@IRG.co.nz
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