An eventful third quarter looms

Economic data is likely to look good during the next three months, Craigs Investment Partners broker Chris Timms says.

The Reserve Bank was forecasting New Zealand's annual economic growth rate to peak at 4.2% in the three months ended June.

''This will be reported in September and should keep sentiment upbeat, giving it will represent the fastest pace of growth in a decade.''

The United States was also likely to report a strong rebound in growth over the period, following an abnormally weak start to the year, he said.

The election in September was the most important event for local investors during the second half of the year, Mr Timms said.

It National was re-elected, it would largely be business as usual.

''We would expect such an outcome to be taken positively by the market and the business community generally.''

If a Labour-Green bloc was elected, there would be more uncertainty. Markets would grapple with the prospect of increasing income taxes, a capital gains tax, higher regulatory risks and changes to monetary policy, he said.

That would likely be negative for markets, if only due to the range of uncertainties arising from a new and somewhat unknown leadership.

''We would also likely to see businesses delay spending or hiring decisions as a result.''

On current polling, National was the strong favourite to win the election and retain power.

But given the nuances of New Zealand's MMP electoral system, small changes in voter preferences could affect the outcome and investors must be mindful of the risks, he said.


At a glance

Currency: The New Zealand dollar is expected to peak this year before showing some modest weakness over the next few years.

Interest rates: The Reserve Bank is expected to increase the official cash rate by 0.25% later this month. Markets are then expecting a pause before one further rise of 0.25% in October or December to take the OCR to 3.75% by the end of the year.

Listed property: The property sector offered a solid income outlook with dividends at sustainable levels, offering an average gross yield of close to 8%.

Equity markets: Short-term risks are increasing and many investors seem complacent about potential risks to growth or earnings. With most markets trading in line with 20-year averages, value has also become more difficult to find.


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