Key's election victory gives markets some certainty, kiwi gains

Monday 28th November 2011 1 Comment

Prime Minister John Key’s electoral victory on Saturday will give local markets confidence the government will be undeterred in seeking to get its books back in the black by 2015.

The incumbent National Party won a preliminary 60 seats in Parliament in the general election with almost 48 percent of the vote, and secured a governing majority with support partners Act New Zealand and United Future, which each won a single seat. National may lose a seat after special votes are counted, which traditionally swells support for the Green Party, and PM Key is meeting with the Maori Party to try and negotiate a similar arrangement under the last Parliament.

The election win saw the kiwi dollar climb as high as 75.09 US cents when trading opened this morning from 73.98 cents at the close last week. It recently traded at 75 cents.

“We’ve been given a clear outcome and that certainty has seen a reaction in the currency market, with the kiwi moving up to quite a decent move – it’s not a move you can attribute to offshore,” said Khoon Goh, head of market economics and strategy at ANZ New Zealand.

“In this kind of environment having stable government is a good thing, especially given we have a disciplined fiscal plan,” he said.

Investors had grown nervous about the outcome of the election after a bout of late polls showed National might struggle to cobble together a working majority due to a late surge in support for New Zealand First.

Saturday’s result means Key will be able to press ahead with plans to overhaul the welfare system, sell down holdings in a handful of state-owned enterprises, and introduce competition to Accident Compensation Corp’s work book.

Craig Brown, senior investment analyst at OnePath (NZ), said the result is what the market was looking for and “should be favourably received.”

“In terms of the short-term, this will be seen as a positive outcome,” he said. “It means we can continue on with the existing leadership, which has been doing a pretty good job in pretty difficult and volatile times.”

ANZ’s Goh said the result might see investors return to the government bond market after they were spooked by last week’s polls. The yield on 10-year government bonds rose 5 basis points to 4.045 percent.

“People opted to wait till after the weekend, and with the clear outcome, people will probably come back from the sidelines,” he said.

The plan to sell down just under half the government’s holdings in electricity generators won’t be derailed with veteran politician and opponent Winston Peters and NZ First returning to Parliament, Brown said.

“Winston will be on one side of the House throwing mud around,” but doesn’t have the numbers to prevent it, Brown said.

Earlier this year, Key signalled the government planned to sell down its stake in the three electricity retails Genesis Energy, Meridian Energy and Might River Power, coal miner Solid Energy and national carrier Air New Zealand to just over half, raising as much as $7 billion which it will use to fund other infrastructure projects.

Brown said listings on the stock exchange will deepen the bourse and help improve investor confidence, which is struggling in the current global environment.

Even though the international volatility might drag down the maximum price the government can get for the partial floats, the defensive nature of the electricity stocks and similarities to listed power companies Trust Power and Contact Energy should add some certainty for investors, Brown said.

The Maori Party, another potential support partner for the government, campaigned on opposing asset sales, though co-leader Pita Sharples said they would be willing to negotiate special access for iwi if the programme was to proceed.

Brown said having Maori interests on the share registry should help ensure there’s enough demand for the sales, and could be done via a share issue as part of a Treaty of Waitangi settlement, with heavyweight iwi Tainui and Ngai Tahu negotiating clauses that would lift their pay-outs if total settlements with all Maori exceed $1 billion.

If the government’s asset sale programme is a success, that could see local government agencies opt for similar measures to free up capital to pay for new infrastructure, Brown said.

Earlier this month, Auckland Council, the country’s biggest local government body, was put on CreditWatch negative by rating agency Standard & Poor’s over the city’s planned increase in spending, particularly on transport.

Assets that could potentially be sold include Ports of Auckland, which was previously publicly listed, and Watercare Services.

(BusinessDesk)

BusinessDesk.co.nz

Comments from our readers

On 28 November 2011 at 12:19 pm Siena said:

There are significant opportunities for Iwi and hapū to commercially partner together and/or with the Crown, which could include: Government commitment to public- private partnerships/infrastructure development; Growing drive and capability amongst Iwi and hapū to co-invest; Treaty relationship (co-investment with the Crown is also founded in the concept that a relationship between the Crown and Iwi as co-investors in national infrastructure). I read a report put out by the New Zealand Herald that, "Auckland City and Manukau ratepayers will foot a $28 million bill as their councils move to secure their stakes in Auckland Airport. The cities’ cash injection is the result of the airport company’s announcement yesterday of its plans to issue new shares worth $126 million to help pay for its purchase of a 24.55 per cent stake in CairnsAuckland City Council has a 12.71 per cent holding in the airport at Mangere. Manukau’s is 10.01 per cent. and Mackay airports in Queensland. To maintain those stakes, Auckland City needs to spend $16 million and Manukau $12.66 million buying extra shares. So Auckland ratepayers have just been forced to invest in a speculative purchase of airports in Queensland. People emotionally like the idea of their Council owing their local airport, but really there is no reason ratepayers should be in these investments. In the case of AIAL, the Councils own under 25%, so are far off a controlling interest. If the stake is over 50% one can claim there is some value in being able to veto major decisions and appoint directors, but the Auckland Councils don’t have this ability. But the bigger issues is that in a globalised world, these companies do not just own local assets. AIAL now owns two Australian airports. Now that may be a fine investment for those who have made a choice to invest in AIAL, and back their investment strategy. But it is not appropriate Auckland Councils are risking ratepayer money in these investments. Even worse they have to borrow money or levy ratepayers to fund the expansion plans. They do not have to take up the rights offer, and should not. I myself have a financial interest in Auckland Airport via shares inherited by me from mt Late Parents...But I am pleased I am not a resident ot a ratepayer in Auckland.