Migration should continue to be a positive driver for the New Zealand economy and equity markets. Forsyth Barr broker Lyn Howe says market concerns with regards to a slow down in migration, and in particular, negative political action are overblown.
This will provide positive surprises for companies exposed to New Zealand Inc. Business editor DeneMackenzie reports.
Migration had been the major driver of New Zealand economic growth in the part five years and the outlook was supportive for strong permanent/long-term (PLT) arrivals persisting.
Forsyth Barr broker Lyn Howe said departure numbers were likely to rise slightly as temporary visa holders left.
However, tighter migration policies globally should mean the upside to the current level of departures was much lower than in previous cycles.
''Our analysis of migration suggests this cycle is likely to extend further than we have previously anticipated,'' she said.
New Zealand equities should continue to look good from the ''outside in'' as the level of economic growth remained robust relative to peers.
That supported offshore ownership staying in New Zealand longer and earnings risks to cyclical stocks were likely to be lower than previously thought.
''While we think strong PLT migration should benefit most New Zealand Inc stocks, once we account for specific valuation concerns, we believe aged care is the sector mostly likely to surprise positively,'' Ms Howe said.
Higher than expected migration partially offset market concerns around aged care companies having large development pipelines, she said.
A longer migration cycle, and an improved mix of migrants, should enable house prices to remain elevated.
Forsyth Barr had softened its view on the risks surrounding development in Auckland while still believing developments could surprise positively, she said.
Forsyth Barr remained biased towards operators with large amounts of care and small development profiles in Auckland, given the projected under supply of beds in the city.
New Zealand's continued rising migration was driven by the country's safe-haven status, along with its relative and absolute economic growth, Ms Howe said.
Global economic and political uncertainty had increased materially since the global financial crisis.
New Zealand and Australia, to a lesser extent, were considered safe havens, being relatively insulated from political economic uncertainty.
New Zealand was also seen as one of the few countries to maintain ''sane'' monetary policy, Ms Howe said.
''This looks unlikely to change quickly.''
At a sector/stock level, strong PLT migration and the associated aggregate demand impulse had been a positive driver for top-line growth across stocks exposed to NZ Inc.
They included aged care, construction, consumer discretionary and property sectors.
The extent to which companies in those sectors identified as having migration exposure had capitalised on the boom varied.
This was primarily based on how individual companies had managed capacity pressures and the cost of the extra demand.
Politics was the biggest risk to PLT arrivals in New Zealand, although the actual risk was low, Ms Howe said.
Large decreases of the pro-cyclical phenomena of PLT required wholesale reform of migration policy in New Zealand.
Boosting economic growth, higher net migration placed immense strain on the housing market and broader infrastructure.
Data from the 2014 electoral survey suggested strong popular sentiment towards reducing immigration numbers. Since that election, PLT migration numbers had more than doubled from about 30,000 net migrants a year to about 71,000.
''We note Green voters sit much closer to National than Labour when it comes to attitudes to migration, reinforced by recent comments from Green co-leader James Shaw.
''We believe the lack of a natural coalition across this issue makes an effective, coherent policy response towards curbing net migration extremely unlikely.''
The political risk was overblown, Ms Howe said.
Migration had driven economic growth and property prices upwards.
People who had benefited the most - home owners and baby boomers - tended to vote.
The cohorts hurt most by net migration - the young and poor - tended not to vote.
That limited the electoral incentive to significantly reduce the level of immigration.
Formulating effective and efficient policy to address PLT was difficult and it was difficult to see a natural coalition on the issues, she said.
Labour, the Greens and NZ First were seemingly poles apart from each other on the issue and National had publicly declared migration to be a good problem and a sign of success.
By the time the policy was implemented, migration trends might have moved through the cycle and no longer be an issue.
Things that were difficult and took a long to implement and see a result from tended not to happen.
It was more likely net PLT migration would go down and whoever in Government would take the credit, rather than meaningful reform occurring.
''We think migration is just a proxy battle for the broader policy war over housing policy as the Greens recently showed when walking back their policy last year.''
In a diverse multi-cultural society, migration was a difficult conversation to have without sounding negative, Ms Howe said.
In the past, race-baiting political tactics had been used to great effect but major parties would be unwise to again engage in those tactics.
Minority groups were becoming increasingly important in the New Zealand political landscape, particularly in terms of fundraising.
Political parties were being careful about how they highlighted their immigration policies on their websites.
''Even though the election is close, we think the policy platforms on these issues are relatively set.
''As a result, it is our view migration policy is too hot for the major parties to handle.''
