National remains in the box seat to win the election but under MMP it will be a tight race, Craigs Investment Partners says in its Election 2014 report. Business editor Dene Mackenzie looks at the implications for investors.
As September 20, polling day, approaches, National retains a strong lead in the polls, but as is usually the case in the weeks immediately preceding the election, the polls have tightened, Craigs Investment Partners broker Chris Timms says.
The most recent four polls showed National's party vote at about 48% and the Labour and Greens consistently polling below 40%. But this is changing almost daily.
Assuming National's current partners retained one electorate seat each as expected, National would govern with 64 seats, Mr Timms said.
''Another 3% swing from National to the left and they and their current partners would fall one short to 60 seats, leaving New Zealand First in the position of kingmaker. In this event, the final outcome may be unknown until some time after September 20 as negotiations take place.''
Generally, there would be a positive response from financial markets if there was a continuation of the existing leadership, he said.
Business and consumer sentiment might improve slightly should National remain in power and given markets like certainty, it was expected the local market and currency would respond positively to such an outcome.
The most obvious group of companies to benefit from a National victory would be the electricity sector, Mr Timms said.
Craigs recommended investors maintained holdings in favoured exposures or Meridian, Genesis Energy, Contact Energy and Mighty River Power, potentially increasing those given the expected post-election upside.
There were no significantly disadvantaged sectors under National.
Given Labour indicated it would look at monetary policy with a view to keeping interest rates and the currency down, a National win cleared the path for further interest rate rises in 2015.
The dollar could also strengthen, he said.
''Whether justified or not, we believe a win for Labour and its coalition partners would be viewed negatively by financial markets due to the natural uncertainty that comes with a change of government.
''In our opinion, the New Zealand risk premium would rise as a result, potentially resulting in some financial market and currency weakness,'' Mr Timms said.
Growth in the economy would not be significantly affected by the outcome of the election, he said.
While Labour was generally considered to be less friendly to the business sector, several of its policies could be supportive for growth and for markets.
Compulsory KiwiSaver could 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 would also support higher-yielding stocks, he said.
Regardless of the election outcome, the New Zealand dollar was expected to peak this year before showing modest weakness over the next few years.
''Labour seems determined to speed up the process via policy changes and, should they win, markets may push the New Zealand dollar down anyway if they are perceived to be less stable or higher risk than the current government.''
Should National be re-elected, the currency should be well supported over the short-term.
That could see some of the export stocks underperform in the immediate wake of the election should the currency attract some support, Mr Timms said.
