Mark Lister, 2 August 2017

The next several weeks are shaping up as hugely entertaining, and I have no doubt the election will be a nail biter. Pollsters, journalists and political junkies must be loving it, but what about financial markets?

I’ve always suspected it would be close. A fourth term is a big ask no matter how popular you are, and it’s something that’s never happened under MMP.

National remains well ahead, especially since the Budget. Polling over the last six months has seen them average about 46 per cent. This puts them easily in front of the Labour/Green bloc, which has been around five percentage points behind.

However, that might not be enough. National has performed extremely well at the last two elections, winning 47 per cent of the party vote. That’s the most any party has managed under MMP. Even then, they required the support of other parties and only scraped over the line by a few seats.

This time around, the charismatic John Key is out of the picture and a rejuvenated Labour has emerged in recent days. It remains to be seen how much Labour’s changes will pay off, but I suspect they will get a boost in the polls to go along with the healthy dose of media coverage they’ve enjoyed.

It would only take a small swing away from National to see them get close, but not quite there. Coalitions will matter much more this time around.

We hear the ‘Winston Peters as king maker’ rhetoric every three years, although more often than not the veteran has had little influence on the final result. This time, there is a high chance he emerges as a major force in post-election negotiations.

New Zealand First has a habit of finishing strongly. Last time they won 8.7 per cent of the party vote, having polled about five for much of the year. Ominously, New Zealand First has averaged 10 per cent in the polls since March. If they again experience a late surge, they could put themselves in an influential position.

As always, the election will mean uncertainty for businesses and investors. This nervousness might dent confidence, putting hiring and spending decisions on hold. It could also create a short-term headwind for the sharemarket, maybe causing a little more volatility.

The NZ dollar tends to fall when investors smell uncertainty, but a little currency weakness wouldn’t do any harm anyway.

Housing is a key issue, and is at the heart of just about every inequality measure. While it’s a sitting duck for policy change, I’m not convinced we’ll see anything too dramatic on that front. Besides, the price gains of recent years have started reversing on their own.

Migration is the other big one, and a knee-jerk overreaction could be the biggest election risk to the economy, particularly to many regional businesses.

Regardless of the outcome, I find it hard to see the election derailing the economy. The differences between the major political players simply aren’t as significant as we’ve seen in other parts of the world. There will be change in some areas, so certain sectors and companies will fare better than others.

New Zealand is in a strong economic position. Growth is robust, unemployment is low, the dairy sector has improved substantially, and many parts of the economy are doing very well. Financial markets will ultimately put more weight on these fundamentals, rather than political change in Wellington.