Don’t fret the small stuff when it comes to how your investments will fare as a result of the 23 September 2017 election. We live in a MMP political environment and a degree of uncertainty is created after each election about what the new government will do.
We all know that financial markets like certainty and when it is absent, market sentiment goes negative and values fall. Commentators will continue to pontificate on the impact of a new coalition government on the pay packets of New Zealanders and their investments. However, the simple reality is that the new government will not directly cause much change in the short-term.
- Both the National and Labour parties are reasonably centrist and they basically have similar philosophies but espouse those using different language. The deals done with smaller parties to enable the new government to stay in power may cause some eyebrows to raise but the decisions that are made will not have a significant detrimental impact on your investments in the short-term.
- Many of the factors driving current good investment performance will continue under the new government as these factors were either in place prior to the election or are factors outside the control of any government.
- Interest rates will continue to remain low for the next 12 months at least, but with potentially a modest increase in 2018.
- The housing market, especially in Auckland, will take a pause as house prices readjust to their long-term average. A slowing of immigration and lack of affordability will lower demand, but the current lack of housing supply and the delays in building new homes, will help to offset the drop in values.
- The loan to value ratio may be tweaked as a result of future political pressure but the reality is that the majority of housing lending is provided by the big Australian-owned banks. For the next 12 months at least, they are tightening their lending criteria as they rejig their balance sheets to meet Australian regulatory requirements.
- Our NZ-owned companies will, as a whole, continue to perform well for at least the next 12 months as they have good consumer demand in front of them, tax rates are favourable and exporters have managed to adapt reasonably well to fluctuating exchange rates.
The big things that can in the short-term impact on investment performance are largely outside the control of the new government. These are things like:
- Major catastrophes;
- War - especially if it involves a major trading nation or super power such as the USA;
- Radical changes in major currencies such as the US$;
- A significant fall in major stock markets or rise in international bond rates (look to the USA for this); or
- The likes of Donald Trump making some outrageous statement or committing an outrageous act that throws the financial markets into turmoil.
New Zealand has, economically, performed really well in recent years. Obviously this great performance cannot continue forever but a new coalition government will not suddenly precipitate a collapse and economic downturn. Our economy and the businesses that operate within it are far too resilient for a group of politicians to turn things to custard overnight.
However, if you have any concerns, give us a call and we can talk through the issues and how these might impact on you.