Tuesday 24th December 2013
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The general election in New Zealand next year is starting to weigh on the nation's equity market and is also likely to weaken business confidence and the exchange rate, brokerage First NZ Capital said.
The election, to be held between September and November 2014, is expected to be an extremely close result between a National-led government and a Labour/Green coalition, First NZ said in a note, citing recent political poll results.
"The potential formation of a Labour/Green coalition government is likely to weigh on the performance of the New Zealand equity market and is already starting to impact performance," the brokerage said. "The re-election of the incumbent National-led government would likely be greeted positively by investors and give rise to a rebound in the market."
Stocks most likely to be negatively affected by a change of government are in the energy utilities sector such as Contact Energy, Meridian Energy, MightyRiverPower and TrustPower as well as those with regulatory risk including SkyCity Entertainment Group and Chorus, First NZ said.
Those most likely to benefit from a change include exporters such as Fisher & Paykel Healthcare and Sanford which would receive an earnings boost from a lower exchange rate, while Fletcher Building and Methven would benefit from Labour/Greens housing initiatives, the brokerage said.
The attractiveness of New Zealand equities relative to other equity markets has already declined, reflecting the rise in political risk premium, First NZ said.
"There are risks of both a combination of either smaller inflows and/or greater outflows from domestic and foreign based fund managers involved in the New Zealand market," the brokerage said. "Any such reductions in asset allocations to domestic equities could be expected to result in a less supportive New Zealand equity market backdrop going forward, together with a higher cost of capital for the New Zealand economy."
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