WELLINGTON: New Zealand’s stocks and currency face a test as a tight general election raises the prospect of drawn-out coalition talks and uncertainty over the next government’s policy agenda.
The benchmark S&P/NZX 50 Total Return Index has lost momentum after hitting a record high in August as investors turn cautious ahead of Nov 7 election, with polls pointing to a close race and a likely complicated path to forming a government.
Meanwhile, the New Zealand dollar has sold off against the greenback, with its value sliding around 6% since late August.
After the vote, investors will focus on how quickly a government forms and what economic, tax and regulatory policies emerge.
With the National Party and Labour Party exchanging razor-thin leads in polls and both below 30%, smaller parties may prove pivotal in coalition talks, leaving the stock rally vulnerable to a prolonged period of policy uncertainty.
“The important question is what emerges from the negotiations,” said Greg Smith, investment specialist at Generate Investment Management Ltd in Auckland.
“Markets are generally reasonably good at pricing a policy once they know what it is. What they find more difficult is prolonged uncertainty.”
Among the areas in focus ahead of the Nov 7 vote include electricity and energy stocks. Minor parties gaining ground in opinion polls are proposing energy policies that may reshape the sector.
NZ First and the Greens want to break up the country’s so-called gentailers, which operate the nation’s generation plants and sell power to consumers, while the Greens also propose establishing a new publicly owned energy company.
Those proposals may weigh on Contact Energy Ltd, Meridian Energy Ltd, Genesis Energy Ltd and Mercury NZ Ltd.
The gentailers, however, may benefit from Labour’s plan to require data centres (DC) to support new electricity generation, while Infratil Ltd may face pressure from a Greens proposal to pause new DC consents for a year, according to an October UBS Group AG note.
Forsyth Barr sees limited risk to earnings from the proposed policies, but warned that prolonged political scrutiny may itself weigh on the sector.
“It is unlikely that any of the policies proposed by the political parties, including separation of the gentailers, would materially change the sector’s earnings,” the firm said in a September report.
“The debate itself is not costless, though. Sustained political attention makes it harder for the sector to outperform, whatever the eventual outcome.”
Housing is another key area, with Labour proposing a 28% capital-gains tax on investment property.
The policy could weigh on the property market and companies exposed to it, including residential builder Fletcher Building Ltd and commercial developer Precinct Properties Group.
A weaker housing market may also add pressure on retirement-village operators Ryman Healthcare Ltd and Summerset Group Holdings Ltd, UBS wrote.
Both are already grappling with higher care wages and faster repayment of residential loans.
Meanwhile, healthcare stocks may emerge as beneficiaries of increased spending proposed by parties on the left.
EBOS Group Ltd could benefit from higher funding under some policy outcomes, according to UBS.
Fisher & Paykel Healthcare Corp may also be in focus after it raised its full-year 2027 guidance in August.
Labour is proposing three free GP visits a year and the removal of prescription charges, while the Greens plan to increase public health funding by NZ$30bil (US$17bil) over four years.
“Healthcare could potentially be more positively exposed to a Labour-led government, depending on the final policy mix and how additional health spending and pay settings flow through the sector,” according to Generate Investment’s Smith.
The kiwi has fallen 0.5% on average in the month following the past six national elections, according to Bloomberg data.
The currency faces an added headwind after the central bank’s surprise rate hold last Wednesday prompted traders to reassess the timing of the next hike.
Labour has pledged to restore the reserve bank’s dual mandate, adding full employment to its existing 1% to 3% inflation target.
With the job market still soft and the economic recovery fragile, a Labour victory may weigh on the kiwi and bond yields if traders see the policy shift as reducing the need for further rate hikes next year.
The kiwi is likely to underperform its peers while New Zealand debt remains attractive, said James Novotny, a portfolio manager at Jupiter Asset Management Ltd in London, who bought the nation’s bonds ahead of the election. — Bloomberg
