New Zealand politics an exercise in stability

The BNZ-KangaNews roundtable took place a few weeks before New Zealand’s general election. Participants were keen to highlight the low level of political risk the election promised.

DAVISON Globally, electoral outcomes have been perceived as more of a market risk of late than at any time almost in living memory. How is the political situation affecting the local capital markets?

MARSH The institutional underpinnings are pretty strong in New Zealand regardless of the political outcome. I’m talking about things like the Fiscal Responsibility Act, Reserve Bank Act, monetary policy and the like – it would be hard for any government to diverge significantly from this backdrop.

Both New Zealand’s major political parties have promised a lot more housing and social assistance, which the market has found hard to price. There may be some sort of negative market reaction if the Labour Party wins – though, as its leader has pointed out, the last time it was in power it saw nine consecutive budget surpluses.

I see this election as something of a case of ‘don’t vote – the government will get in’. By which I mean any plausible outcome is likely to be a case of business as usual plus or minus a bit of noise.

COX I think the electoral outcome has a lot more relevance to domestic investors than those offshore. If you’ve recently lived through Brexit, the election of Donald Trump and the situation in North Korea how much are you going to care about a slight change of policy direction in New Zealand?

BUTCHER This is true. It reminds me of the last time the New Zealand sovereign was downgraded: by the next day, something else was happening globally and people moved on. Global forces around things like the unwinding of QE are much more significant to us – and should be much more of a source of caution – than purely domestic factors like an election.

MARK BUTCHER

Global forces around things like the unwinding of QE are much more significant to us – and should be much more of a source of caution – than purely domestic factors like an election.

MARK BUTCHER NEW ZEALAND LOCAL GOVERNMENT FUNDING AGENCY

DAVISON For the benefit of readers outside New Zealand, can local market participants explain how New Zealand has managed to avoid a swing to the kind of populist politics or rejection of established politicians seen elsewhere?

MARSH We have had growth of 3-4 per cent since 2009-10. I’d say the mood in the country is ‘more Trudeau than Trump’, because we have very low unemployment and in the main are not experiencing the same degree of social dislocation present in other countries.

COX There are some similarities in style, though. This election has really been about headline slinging rather than a detailed, policy-based process. So we are following the global path of being less concerned about facts.

There are some policy differences underlying the political parties. The one that would be really interesting for domestic-market participants is if there is a change to the Reserve Bank of New Zealand’s policy targets – if, for instance, a growth or unemployment target was introduced it would have to imply a lower-for-longer rates outcome.