Nothing is guaranteed - least of all the future performance of investment markets. However, the landslide election of the National Party has resulted in renewed confidence of New Zealanders in our capital markets and a corresponding lift in market performance.
What has changed? Financial markets like certainty, consistency, and clear messages. A change in government from centre right to centre left can result in previous policies being reversed - resulting in potential losses for those invested in the businesses affected by that policy change. A good example of this is the New Zealand power industry which, prior to the election, was under threat with the Labour Party promising to reverse the partial privatisation and force power to be sold via a central market. This uncertainty resulted in the capital values of many power companies falling or going sideways - even when outstanding profits were being achieved. A strong win for National means the status quo will remain. These companies can invest with confidence, implement their long term plans and increase shareholder value. Investors will see the long-term potential and invest into those companies, resulting in share price appreciation.
Our markets are subject to many forces, both locally and internationally. The government cannot control international forces such as world recessions, commodity prices, currency values, etc., but getting back into government and immediately signalling ‘business as usual’ effectively removes much of the local uncertainty and enables professional fund managers who run the big managed funds, to better identify long-term value in market sectors and make medium and long-term investment decisions. This is all positive for the New Zealand investor using those funds.
Markets will continue to be vulnerable but at least we know that one area of potential risk has now been significantly reduced. Talk to a Milestone adviser about how the election impacts on the market environment and what areas have the potential to outperform.