The National Party's strong polling has led to market
complacency around the potential for policy shifts following
the September 20 election, Forsyth Barr broker Andrew Rooney
However, Mr Rooney warns National is polling lower than it
did in 2011 and its normal voting constituency is less than
''This means nerves may once again be tested as the election
A National-led government was still the mostly likely
outcome, given the difficult the left voting bloc created in
accumulating sufficient support and the number of supporting
parties required, Mr Rooney said.
If 2014 polling followed historic trends and National's
polling started driving lower closer to the election, it
might provide opportunities in the market as some of the
market's complacency was removed.
Electricity generators wore the greatest policy risk, given
the number of Opposition parties supporting the introduction
of a single electricity buyer model. That might see greater
discounts being applied to those valuations in order to
reflect the risk.
''As we believe National's vote will have to fall below 46%
before there is a risk of change in government, we will look
to buy on any fall in these share prices.''
IMPLICATIONS OF A POLLING FADE
The Labour Party alternative budget was released in June,
targeting debt reduction and was more moderate than many
expected, Mr Rooney said.
The top marginal tax rate was only 36% and only on income
above $150,000 Capital gains taxes would be introduced under
Labour but would not be retrospective, would exclude the
family home and gains and losses taxed at 15%.
The likely impact of the policies on equity markets would be
the single-buyer electricity model and the impact on
sentiment from the introduction of a capital gain taxes.
Other policies to be mindful of and potentially affecting
financial markets were. -
• Introduction of living wages imposing additional costs and
potentially reducing competitiveness of New Zealand
• SkyCity Entertainment might be affected by a review of the
New Zealand Convention Centre contract.
• A carbon tax or broader emissions trading scheme could
increase fuel costs and reduce export competitiveness of
• No new mines and stricter controls on energy developments
could impact exploration.
• Tougher alcohol and smoking legislation and additional
moves to limit duty-free allowances.
''Unfortunately, given the multitude of parties that may need
to be cajoled, slippage should be expected and the layering
of additional regulation and interference in market
structures would hurt business and investor confidence.''
Financial markets disliked uncertainty so any uncertainty
created by the potential for an alternative election outcome
should see share prices ease as the election drew closer, Mr
The sector with the greatest policy risk was electricity
generators, given the broad support for a single-buyer model
by most Opposition parties.
Based on a status quo outcome, the sector offered good value
for risk but various stocks within the sector could ease if
greater election uncertainty was built into share prices.
Based on an analysis of the impact of the introduction of a
single-buyer model on various generators, Genesis and
Meridian carried the greater risk, with less than 20%
probability of the introduction of the policy implied in
current share prices.
Mighty River and TrustPower share prices implied about 50%
probability, while Contact Energy's share price would imply
100% probability of its introduction.
''As we approach the election, and assuming the polls follow
historic trends, a narrowing of National's lead could see
pressure on the electricity sector.
''Given we doubt the Left can form a credible coalition, we
would use any weakness as a buying opportunity.''
Stocks favoured by Forsyth Barr, based on value for risk were
Contact Energy, TrustPower and Mighty River Power.
Gaming was another easy target sector for taxation or
populist policies, Mr Rooney said.
The Adelaide capital development was the larger driver of any
earnings uplift for SkyCity but increased parking and
extending the life of licences in Auckland were important
outcomes for the convention centre developments.
SkyCity might fall on increasing project risk as the election
approached and Mr Rooney's concern remained on SkyCity's
ability to achieve adequate return on the project
''Given some concern regarding achieving adequate return on
upcoming investments, we would not target SkyCity unless
there was a significant pull back in its share price.''
Mining and exploration representation on the New Zealand
market was small. The listed constituents were primarily New
Zealand Oil and Gas and Oceana Gold, he said.
Any slippage in the polls could increase the perception of
increased risks to extraction industries and also of higher
royalties on oil production.
If implemented, the royalty increases would significantly
reduce oil and gas exploration activity in New Zealand and
drive investment by local participants offshore. That would
be negative for sentiment.
''Given the contribution to New Zealand's economy and that
all coalition members would need to support such measures, it
is likely any shift would be less than the worst-case
scenario - if indeed implemented at all.''
CARBON EMISSION TAXES
Labour had opposed the Greens' proposed carbon tax and
indicated its preference for a broader emissions trading
scheme, while leaving the door open for negotiation, Mr
Companies which were high carbon emitters could be negatively
affected by sentiment should polling fade occur.
Transport companies would likely adopt a fuel surcharge
strategy to help pass on costs so it would be companies
competing against imports most at risk, he said.
Among listed companies. -
• Higher cost of energy could affect Fletcher Building with
higher cost cement competing against non-taxed imports.
• Refining New Zealand margins could be reduced by higher
taxes and its competitive advantage eroded by imports.
• Sanford could face higher fuel costs relative to
• Transport companies would face higher fuel costs but in the
past those had tended to be passed through by surcharges.
While some of the cost could be borne by the operators, it
was not anticipated it would significantly impact valuations.
Taxes being introduced on dairy earlier could also reduce
farm profitability and production, reducing Fonterra's
• Current polling suggests the Opposition parties combined will
not have sufficient votes to form a government but the election
is likely to be closer than many believe.
• Labour's polling is tracking in line with the 2011 polling
and near the low end of its traditional support level.
• The green vote has fallen back to the support level it had in
the last election.
• The split of the centre-left vote, now the Internet-Mana
Party has entered the fray, may affect the formation of a
• Who would New Zealand First support if its party vote
achieved the required 5% threshold?
• National may be polling above 50% of the party vote but
investors need to recognise the election result is likely to
be much closer.
• National is polling lower than it was in 2011.
• National's election-day result tended to be lower than
• National is unlikely to maintain over 50% of the vote.