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Election 2020: The financial markets give their verdict on Labour's landslide win

By: Jamie Gray

Business reporter, NZ Herald


Financial markets have taken Labour's landslide win in their stride.


By midday the New Zealand dollar was trading at US66.13c, up a touch from US66.04 late on Friday, while the sharemarket's S&P/NZX50 index was a few points softer at 12,418.61.


Labour won almost 50 per cent of the vote compared to 27 per cent for the opposition National Party - enough to allow Labour to form the first majority government since the MMP electoral system came into force in 1996.


Prime Minister Jacinda Ardern has said she intends to form a government in two or three weeks - a short timeframe relative to history.


The new government may or may not include the Greens, which also polled strongly.


Meanwhile, former coalition partner New Zealand First is no longer in the picture after failing to exceed the 5 per cent voting threshold.


A Labour-only government is seen as being more business friendly, as opposed to a Labour-Green coalition.


Politics aside, the financial markets' key drivers have been the current low interest rate regime, and the Reserve Bank's quantitative easing programme.


Salt Funds managing director Matt Goodson said the result was well foreseen by the opinion polls, and he noted the election was "policy-light".


"The outcome is a little more centrist perhaps than a possible Labour-Greens coalition going in," Goodson said.


"It was a really policy-light campaign from all the parties, so it's not likely that we will have a huge plethora of changes coming in to positively or negatively affect different sectors," Goodson said.


The markets reaction so far had been muted.


"What really matters at the moment is this remarkable monetary policy experiment being conducted with ultra-low low interest rates and quantitative easing, and that is unchanged for now," Goodson said.


"That dominates the more modest changes on the fiscal and political front," he said.


Harbour Asset Management portfolio manager Shane Solly said it felt like the financial markets were prepared to take a long-term view.


"Certainly, people had expected a Labour win, so there is no evidence of any negative reaction," he said.


"There is nothing obvious to worry the capital markets. There is no negative reaction at this stage but it is early days."


Normally financial market traders, and businesses, are wary of left-leaning governments.


"But the Labour majority is actually a more centralist government, with less reliance on the Green party," Kiwibank said in a commentary.


"And the government has been unshackled from New Zealand First," it said.


Talk of radical tax changes may subside.


Labour's announced plans are palatable. And we may see business confidence lift a little more."


"Labour alone is seen as more business friendly, than a Labour in need of Green support."


jamie.gray@nzherald.co.nz

@JamieGrayNZ

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