Risk of regulation: Mighty River Power's Whakamaru Power
Station, on the Waikato River. Photo from MRP
Regardless of political allegiances, a cautious approach
to election-sensitive sectors, and a well-diversified portfolio
is needed to mitigate the range of possible election outcomes,
Craigs Investment Partners broker Chris Timms says.
In a research note on the election, Craigs says on current
polling, National would ''probably scrape in, but only
With less than 20 weeks until the September 20 election,
National was leading the polls in terms of the highest party
But under MMP, a victory was far from secure to the incumbent
leadership, Mr Timms said.
Craigs recommended having a portfolio positioned for either a
red or blue outcome.
''We believe markets have become a little too complacent with
regard to the uncertainty surrounding the election outcome
and we remind investors that it remains finely balanced.''
Growth in the economy was not likely to be significantly
affected by the outcome of the election, he said.
While Labour was generally considered to be ''less friendly''
to the business community, a number of policies could be
supportive for growth and for markets.
Compulsory KiwiSaver would be positive for capital markets
and it could be argued a capital gains tax would affect
equities less than residential property, due to equities
being less reliant on capital gains for their long-term
returns. A lower path for interest rates and the currency
would also support some sectors, Mr Timms said.
Craigs recommended adding exposure to companies with less
down side under a change of government including those with
low regulatory risk, such as Metlifecare, Trade Me,
Freightways and SLI; offshore earning such as Fisher and
Paykel Healthcare, Diligent, Mainfreight, The a2 Milk
Company, and Delegat's Group; and exposure to additional
support for low and middle-income earners such as The
Warehouse Group and Hallenstein Glasson.
Companies already regulated, such as Vector and Auckland
International Airport, might also be more insulated from any
Craigs also recommended limiting exposure to companies
already highly price which might face added regulatory
scrutiny, such as Sky Network Television and Sky City
Entertainment. Increasing Australian and global equities for
diversification should also be undertaken, Craigs said.
''We expect the New Zealand dollar to peak in 2014, before
showing some modest weakness over the next few years. Labour
seems determined to speed up this process through policy
changes and should they win, markets may take care of this
for them if they - or their potential coalition partners -
are perceived to be less stable or higher risk than the
Craigs' electricity New Zealand equity portfolio had a 12.5%
exposure to the sector. It was ''generally appropriate'' for
most investors to hold 10% to 15% of their New Zealand
equities in the electricity sector, depending on their risk
profile, requirement for income and other individual
The electricity sector had outperformed the market strongly
during 2014, partly because there was an anecdotal feeling
National was likely to remain in power and the industry
structure would remain largely unchanged.
''We believe the election may still be a tight race and we
recommend investors take a fresh look at where their sector
exposures lie. If large positions exist, consider rebalancing
to move closer to appropriate levels.''