What does the change in government mean for investments?

Last night, Winston Peters made the announcement that New Zealand First has picked Labour to form the new government—making Jacinda Ardern the new Prime Minister of New Zealand.

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Before the election, we caught up with economist Zoe Wallis about the impact elections can have on the markets. She mentioned that markets like certainty and a change of government could leave people pretty uncertain about big issues like tax, housing, migration, and infrastructure.

So where are we at now that a decision has been made?

The immediate things we’ve seen:

There has been a drop in the NZ currency. In the hour following the announcement NZD fell by 1.3% to a five-month low.

People using Sharesies may have noticed their international investments have gone up, this is largely because the NZ currency has dropped.

What impact does a change in currency have?

When a country’s currency grows, it means their dollar is worth more than the other currencies it’s compared with. This has a massive impact, especially when importing and exporting. It means they’re able to get more money for things they export, and can buy more imports for a lower price.

Most of the detail is still to come

Other than the announcement that New Zealand First’s support for a Labour-led government, and that Winston has been offered the Deputy Prime Minister role—there hasn’t really been any more detail about decisions around portfolios or policies. We’re told this will be coming next week.

What’s next?

It has been quite a year for political shocks, and as mentioned in the previous election blog—the affected markets bounced back.

“What has been surprising this year is just how calmly international equity markets have responded to political shocks — including Brexit and the US election. UK stocks are now trading over 23% higher than before the vote. And in the US, equity markets have gained about 15% since the US election in November last year.”
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There will no doubt be some more expert opinions, and speculation as more information gets released.

Have a great labour weekend.

 

Ok, now for the legal bit.

Investing involves risk, including the potential loss of principal. The info provided above isn’t a recommendation to buy, sell or hold any financial products available through the Sharesies platform. Before investing, consider your investment objectives and read the fund’s product disclosure statement carefully. It contains the fund’s investment objectives, risks, charges and other information which should be considered carefully before investing.