NZ dollar gains, stocks likely to cheer National's outright victory

Monday 22nd September 2014

The New Zealand dollar rose and local stocks may follow after the National Party won an outright election victory, removing the risk of minor parties forcing through policies unpopular with financial markets.

National could govern alone based upon the election night result of 61 seats in a 121-seat parliament. Assuming that holds once the final count is complete, John Key is likely to form a National-led coalition including two Maori seats and one each from Act New Zealand and United Future in his third term, lifting the government's total to 65 seats.

The kiwi dollar has shed about 6.6 US cents from its mid-July highs, while the NZX 50 Index has retreated from the record set on Sept. 11. Business confidence fell for a sixth straight month in August. Opposition parties had touted everything from a regulated electricity market to a capital gains tax to holding farmers to a higher standard for clean waterways, while National's to-do list includes amendments to the Resource Management Act that are favoured by business, especially for the primary sector.

"You will get a pretty positive reception out of financial markets - this is a result the business community would have wanted," said Mark Lister, head of private wealth research at Craigs Investment Partners. "Markets will generally be surprised at such a strong victory and weren't picking that the Nats could govern alone. That's pretty positive for the economic outlook and most businesses will be relieved they've got a government they know and understand."

The New Zealand dollar rose to 81.55 US cents from 81.24 cents in New York on Friday. The trade-weighted index was at 78.82 from 78.53.

Power companies generally gained on the NZX 50 on Friday, with Meridian Energy up 2.5 percent to a record $1.45, MightyRiverPower gaining 0.4 percent and Genesis Energy up 0.8 percent. The Labour-Greens proposal for a centralised electricity buying agency aimed at reducing prices came on the eve of MightyRiverPower's float and was blamed for weak demand at the sale.

Lister said a :"cloud of uncertainty" meant energy stocks were trading at dividend yields of around 9 percent, suggesting they were being discounted for electoral risk.

Business lobbies urged National to complete what they called 'unfinished business.'

"Business will be pleased and relieved with the re-election of the government," said Employers and Manufacturers Association chief executive Kim Campbell. "Business will be seeking urgency to enact the Employment Relations Amendment Bill and speedy reform of the Resource Management Act."

Federated Farmers, the main farmer lobby, said National's stronger-than-expected showing was "a clear mandate" to reform the RMA.

“Vital reforms to the RMA have been stalled for want of support from National’s partners in the last parliament,” said president William Rolleston. “There is no ambiguity or room for conjecture on this."

Business confidence in August had fallen by 46 points from the 20-year high it reached in February. Consumer confidence rose from ANZ-Roy Morgan Consumer Confidence Index rose this month after reaching a 10-month low in August. While this was attributed to rising interest rates, a still relatively high dollar and economic growth coming off its peak, election uncertainty may have played a part, economists said.

"It's one suggestion why business confidence could have been wilting a bit of ;late," said Robin Clements, senior economist at UBS New Zealand. "Decisions get delayed. Boards don't like to make investments."

Clements said the election produced "the cleanest result that markets could envisage."

BusinessDesk.co.nz

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