Tuesday 24th October 2017
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Election 2017 Democracy 101
I don’t want to revisit the last 9 months of Politics.
I do want to make some points that will be relevant to the Investment Markets.
The key for me was this was Democracy at it’s best.
The people voted, not really sure about what they were voting for, nor how things would work out.But they did !
Somehow we have got to a decision, one that was not possible on 31-7-17,
just 11 weeks ago.
Jacinda was appointed as Labour leader on 1-8-17 and the whole game was turned on its head.
Personally, I want to congratulate all parties for the way the process has been handled. The Politicians, the officials, the voters and the media have each played their part. Not perfect but at least not as silly as other countries or some previous elections have been.
This has been a fair fight and it has delivered a result.
This was NOT the result I expected nor wanted, but I accept it and
frankly I embrace it!
We can moan about this or that, but on balance, the process has delivered the peoples’ choice.
The Majority in an MMP parliament is reflected in the proposed Government.
For me, the major surprise was Winston Peter’s comments on the immediate economic future. They were amazing.
Quotes are as follows
• “Economic correction or slow - down is looming”
• “House market slowing”
• “Trading Bank and Reserve Bank nervousness”
• “Slowing of Hot money from abroad”
• “Reduction in Consumer optimism”
• “Ebbing retail confidence”
• “Too many Kiwis today think capitalism as not their friend but as their foe”
This surprised me.
We are not used to politicians giving bad news so directly.
Winston’s positioning statement is saying :
“ Look what we have been left with, don’t blame us for what is going to happen ".
The point is he believes this and this is something we all need to take into account when we make investment decisions.
• The result is clear and the deal seems good for all parties, there is no excessive abuse of power, hence it is not a deal done under duress which is likely to blow apart.
• The policies will be a little more to the left, but National was probably going to do that anyway.
• A fresh approach is always good.
• This is Winston’slastshot. He won’t want it to fall apart.
• The Dollar is down a little, and this may help exporters and slow the crazy retail spending and increasing personal debt.
• We will see a clean out of National as MP’s look for other careers.This will help “freshen” National.
• We will see some of the “loose/I see nothing” policies tightened. e.g. Immigration, education, drugs.
• We will see attempts at greater “social justice/balance”. Problems such as youth suicide, global warming, water contamination drugs etc., etc. will gain greater attention.
The New Zealand economy is very flexible and it is able to move resources quickly to other sectors.
All systems are relatively open and transparent.
Nobody has a mortgage on good ideas and change is good (think about how many All Blacks we have lost recently and yet the performance is still improving)
The NZ financial system is open and flexible.
We will see resources move from one sector to another.
We have to deal with our ridiculous Current Account deficit ($7.5 billion).
This is the major reason why we need capital and migrants. We simply spend more than we earn and as a result, we borrow and sell assets.
Uncertainty is generally thought of as risk. The quicker we can get the Government in place the better.
For better or worse, the markets will adjust (maybe they have already)
• Build roads and houses (companies that benefit - FBU, STU, MPG)
• Buy Medical products and services (companies that benefit -EBO, ABA, FPH, GXH)
• Spend money on the disadvantaged
• Create employment (companies that benefit - AWF)
• Seek to grow the economy (Banks - benefit from employment and higher wages paid)
• Reconsider the TPP
• Reduce immigration particularly sham cases
• Pay workers more (labour - intensive sectors suffer, such as the retirement sector).
• Encourage tourism (companies that benefit - AIA, AIR, THL, SKC)
• Support Exporters
We have lots of companies that will benefit.
• Construction - Fletcher Building, Steel & Tube
• Medical - Ebos., Abano.
• Banks from employment and higher wages paid
• Retailers as currency may increase or they benefit from improved wages and more spending (however, Amazon / Internet sales will also have an impact on this sector).
• Carbon producers NZOG, Farmers etc.
• Consumer lenders as regulationis increased.
• Transport companies as taxes are applied.
We have simply dismissed one government and appointed another.
• Will the new one make mistakes? Yes, about the same number the previous one did.
• Will they surprise with great policies? Yes, a few will be excellent.
• Will they be arrogant and condescending? Not at the start, but over time yes.
• Will there be investment opportunities? Absolutely!!
As new policies come into force the market will allow some excellent returns.
• Will we see failures? Yes, no question. Some of the current companies are not well placed to handle the change.
• Will we see a financial crisis? NO, unless there is an international breakdown.
• How will the new Government pay for its promises? By the long-standing custom of Taxes and Borrowing.
• Will life be better or worse, under this group? It will be both. It will change and some parts better and some worse.
I am VERY positive about the future.
We just have to be smart enough to handle the change.
Note this is just one person’s view, mine.
The key is to understand what you are investing in.
Take good advice, be aware.
There will be opportunities and risk.
I welcome feedback!
King Capital & Investment Corporation Ltd
And all subsidiaries.
Contact me on Brent.king@IRG.co.nz
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