Investors advised to watch for political risk in NZ

NZPA

Monday 4th July 2011

Wellington, July 2 Reuters - Political risks for which global investors should be watching in New Zealand include a decline in the National Party's current strong poll ratings, and any overt opposition from National's support parties to Prime Minister John Key's proposal for state asset sales, Reuters reports.

Mr Key had said that his government would seek a mandate for the possible partial privatisation of three power companies, state miner Solid Energy, and some of the government's stake in Air New Zealand, though sales in 1980s and 1990s were unpopular. Mr Key had sought to allay fears, saying the Government would retain majority control and local investors would receive preference in any share sale. New Zealand was recovering from its worst natural disaster in 80 years, the magnitude 6.3 earthquake killed 181 people in Christchurch, and the cost of damage from tremors had been estimated at around $15 billion.

Reconstruction would put pressure on an economy recovering from its longest recession in more than 30 years, with consumers still wary in the face of low wage growth, high unemployment, and the global outlook, and . Key political risks included a direct impact of $8 billion on public finances from the quakes, which would wipe around 1.5 percent from gross domestic product.

Investors should watch national debt levels and data on government finances, as the New Zealand dollar and debt prices were vulnerable to any hint the Government's fiscal position was weaker than forecast. Flat or negative readings in economic indicators, such as retail sales, confidence surveys, property prices and sales, would point to a continuation of the weak economic performance, which might feed through to voter opinion.

Investors should watch the National Party's poll ratings, the newsagency said.

"If the recovery and reconstruction operations are seen as being mishandled or failing, the Government is likely to be blamed, and the party could be punished in the November elections," Reuters reported. "Conversely, adept management of the rebuilding will at the least underpin its ratings". NZPA WGT kca mgr

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