Pre-election insecurity has already started

There will be an election next year.

Barring unexpected events it’s likely to be towards the end of the year.

In 2008 2011 Prime Minister John Key announced the election date in February which removed one of the uncertainties.

However, even if he makes an early announcement on the date again next year, other uncertainties remain aren’t good for business.

The general election in New Zealand next year is starting to weigh on the nation’s equity market and is also likely to weaken business confidence and the exchange rate, brokerage First NZ Capital said.

The election, to be held between September and November 2014, is expected to be an extremely close result between a National-led government and a Labour/Green coalition, First NZ said in a note, citing recent political poll results.

“The potential formation of a Labour/Green coalition government is likely to weigh on the performance of the New Zealand equity market and is already starting to impact performance,” the brokerage said. “The re-election of the incumbent National-led government would likely be greeted positively by investors and give rise to a rebound in the market.”

Stocks most likely to be negatively affected by a change of government are in the energy utilities sector such as Contact Energy, Meridian Energy, MightyRiverPower and TrustPower as well as those with regulatory risk including SkyCity Entertainment Group and Chorus, First NZ said.

Those most likely to benefit from a change include exporters such as Fisher & Paykel Healthcare and Sanford which would receive an earnings boost from a lower exchange rate, while Fletcher Building and Methven would benefit from Labour/Greens housing initiatives, the brokerage said.

That’s a very shallow analysis.

A lower dollar would help give higher export returns but it also pushes up costs of imports including fuel, machinery and raw materials.

It would also make the cost of repaying foreign debt higher and put pressure on wages.

Another very big risk from a change in government is more and higher taxes and less flexible employment law.

All of that would feed inflation which and push up interest rates which would add to the cost of doing business and impact on competitiveness.

It’s not just business which faces uncertainty next year.

The CEO of a charity which receives contracts from a ministry said that election year always makes life difficult as there is growing reluctance from government departments to make decisions when a change in government could result in significant policy changes.

This election year uncertainty is a strong argument for a four-year parliamentary term.

There would still be the costs and constraints of elections, but there would be one more year in each election cycle without them.

2 Responses to Pre-election insecurity has already started

  1. Neil says:

    HP tou are incorrect about John Key announcing the date of the 2008 election early. You should have said 2011. Aunty Helen was still leader.
    Putting it bluntly. I’d rather be John Key with the current economy. We are at the beginning of an avalanche of good news for the year. With a little help from Cunliffe and the Greens look for a good year folr National !!

    Like

  2. homepaddock says:

    You’re right about the date. I hope you’re also right about a good year for National.

    Like

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