New Zealand: When does political risk kick in? - AmpGFX

New Zealand faces a general election on 23 September and will be the first election for Bill English as Prime Minister, after he replaced John Key on 12 December 2016 explains the research team at Amplifying Global FX Capital.

Key Quotes

“There are a number of complexities in the first past the post system, requiring voters to vote both for a candidate in their local electorate and make a party vote (Mixed-member proportional representation MMP).”

“New Zealand elections are hard to predict. A key point of uncertainty is the 5% threshold.  If a party wins 5% of the party vote they receive a number of seats based on the proportion of the vote they received.  As such, parties on the cusp of 5% can change the result depending on which side of the 5% threshold they fall.”

“On current polling, the National Party is again not going to get an outright majority with 46% of support, losing some ground since the last election.  Labour looks likely to pick up some extra seats polling 30% of the vote.  Greens are stable at around 12% and NZ First has improved its position somewhat with 10%.”

“To date, the NZD is showing no sign of political risk.  The market may be too complacent in thinking that the National Party will retain government.  And it is showing no concern that if it does, it will have to deal with NZ First that would make its government more unstable and may require some curtailment on immigration”

“Once the market begins to contemplate that Labour could form government with Greens and NZ First, it is likely to weaken demand for the NZD, raising policy uncertainty, and seen as risking growth in the economy.”

“As it stands, Labour is closer to NZ first on immigration policy.  On its website it says it will “ban foreign speculators from buying existing homes, and “tax property speculators who flick houses within five years”, and end negative gearing tax concessions for house investors.”

“Addressing housing affordability in a major issue in the upcoming election.  Both major parties have a plan to fund building more houses. But the Labour Party proposals appear to pose a bigger risk for house prices and would potentially contribute to a bigger correction in the housing market, with negative implications for the broader economy.”