Nikko AM says that a populist and/or anti-capitalist tone in the new Government will see our economy slow in the short term from declining business and consumer confidence and uncertainty, then rise in the longer term

Nikko AM says that a populist and/or anti-capitalist tone in the new Government will see our economy slow in the short term from declining business and consumer confidence and uncertainty, then rise in the longer term

By George Carter, Fergus McDonald, Stuart Williams*

More than three decades after New Zealand transformed itself into one of the world’s most unregulated economies, a new government of centre-left parties is promising a more ‘hands on’ approach – one that has the aims of amending monetary policy, cutting immigration while lifting wages, and investing heavily in housing and the regions.

The troika comprising the Labour, NZ First and Green parties has taken over Wellington, and it’s clear from their policies and public comments that they have a less favourable view of the free market than the previous administration.

So where to now for an economy that’s been characterised in recent years by high growth and low unemployment and inflation, and topped the World Bank’s ‘ease of doing business’ rankings for the past two years?

A leading indicator is perhaps the Kiwi dollar, which has fallen more than 2% to below 0.69 USD since the new Government was announced on October 20. While that drop may simply be a sign of less confidence in Labour’s ability to manage the economy, of note is Deputy PM Peters’ long-held view that the dollar is overvalued. Now his coalition deal includes reform of the legislation that governs the Reserve Bank, which Peters wants to be more focused on the exchange rate and creating jobs, not just inflation.

We believe short term interest rates are likely to remain steady as inflation at present is not a pressing concern. Furthermore, the introduction of an employment target for the Reserve Bank, which it would need to consider before moving the official cash rate, would create another hurdle for any future rate movements. With a lower NZ dollar increasing the cost of imported items too, and the prospect of higher wages, inflation looks set to rise in the medium term, cutting into higher household incomes.

“We expect the exchange rate to continue to weaken in the short term, but possibly regain some ground in the longer term as the initial reaction to a change in government moderates,” says Fergus McDonald, Head of Bonds and Currency, Nikko AM NZ. “If new policies do result in a lower growth trajectory a lower dollar could well be sustained.”

Equities initially dipped after the makeup of the new Government was announced – just over 1% – but the market has since recovered.

“The backdrop for equities remains positive, with the prospect of different sectoral drivers emerging the obvious beneficiaries are consumer spending sectors and companies,” says Stuart Williams, Head of Equities, Nikko AM NZ.

The effects of some policies are likely to be felt more immediately. For example, Labour and NZ First have agreed to cut net migration by 20 – 30,000 people per year, equivalent to a 30 – 43% reduction. This is despite complaints from many industries that they’re already suffering from a chronic shortage of labour.

Further decreasing supply can only exacerbate the problem, especially for those industries that rely on manual workers, like the farming and tourism sectors. This could be countered to some degree if businesses trim employment levels in response to higher wage levels, with many workers now set to get a pay rise. The new administration is to raise the minimum hourly wage from $15.75 to $16.50 next April, and to $20 by 2021. That amounts to a 37.5% increase since 2008– well ahead of the rate of CPI inflation - and approximately 8% per annum going forward

Add to this the teacher unions’ post-election warning that they’ll strike if they don’t get a significant pay rise, and on top of other recent state wage settlements, and while discretionary spending may give the economy a short-term boost, inflationary forces may build in the medium to longer term.

Perhaps the most defining feature of this self-professed “interventionist” new government is its commitment to spend billions per year on major housing and infrastructure projects.

Labour’s KiwiBuild scheme would see 10,000 new homes built every year, while NZ First has secured $1 billion a year to spend on small towns and rural areas, including a rail revival.

“Indeed, it seems likely the regions will benefit more from this new government than the main centres, especially if a lower dollar boosts demand for agricultural exports and tourism,” says McDonald. “Auckland residents face higher transport costs too, by way of a proposed regional fuel tax. Perhaps the biggest problem facing the Government and the new Ministry of Regional Economic Development is deciding which projects to support.”


Just as politics in other developed countries have recently taken on a more populist and/or anti-capitalist tone, so too has New Zealand’s.

As such, we believe the economy is likely to slow in the shorter term due to declining business and consumer confidence levels and uncertainty over how new policies will impact their businesses and personal finances. However, as the initial reaction to changing policies abates, and if higher income levels eventuate, economic activity is likely to recover in the longer term.

In response to this, we are amending our positions on the two core domestic asset classes: We are positioning fixed income portfolios for the prospect that interest rates rise more quickly under this new government. With our equity portfolios, we have tilted them to invest in companies that are more likely to benefit from the changing sectoral drivers of growth.

George Carter is the Managing Director of Nikko Asset Management NZ; Fergus McDonald is the Head of Bonds and Currency, New Zealand, and Stuart Williams is the Head of Equities, New Zealand. Nikko AM NZ currently manages almost $5 bln of assets across a range of asset classes. This article was a briefing posted on Nikko AM’s global website, and is here with permission.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Whilst I voted for National, I hoped a LNG (explosive acronym) would win the election so that I could make more money. I have no doubt whatsoever that over time, under a LNG government that the poor will get poorer, the middle class will get poorer, and the rich will get richer. I suspect that many anti-Nat forum posters also wished for the same result behind the scenes. The beauty of a LNG government is FUD (Fear, Uncertainty and Doubt) which simply creates volatility in the markets (money, stocks and property) which in turn is a goldmine for wealthy traders and investors, and will do very little, if anything at all, for the poor and middle class.

There are some things which should never be said in public forums such as this lest you scare the people into not giving us the money making cycle after every 3 or so cycles of stability.

As I pointed out in another thread the so called middle class are the targets of both the rich and the socialists. The cloth cap brigade really like the very rich, it's their own that have done well that they can't stand.


Mostly I just ignore you,but occasionally I feel compelled to respond to the nonsense you spout. On what evidence(you know,facts,statistics,that sort of stuff) do you conclude that the "cloth cap brigade really like the very rich,it's their own that they can't stand"?
You make about as much sense as Hosking.

linklater01, they hold the middle class to a much higher standard than anyone else. They expect the middle class to make sacrifices for the good of the people. They expect the middle class to do the right thing for the good of society yet expect the very rich and the very poor to carry on as they are as if they are un-redeemable forces of nature. Just an impression I get. I guess this is because the middle class actually does generally do this, like loyal work horses. History has shown us that the Kulak class, the hard working middle, often gets smashed during and after a socialist revolution.

Yes. Change means volatilty which creates opportunities for those with cash. A downtown in asset values just means the rich get richer as they can acquire more assets at a lower price.

Thankfully with investment vehicles like kiwisaver, your regular Joe from all classes will benefit from regular investment.

Assisting the regions is great. If I understand it correct most of that money is to go to infrastructure projects. Every region can put their ideas forward to Shane Jones who then passes them on to cabinet to decide which ones will get the go ahead. There will be loads of proposals coming forward, they all take time to process and decide on, a very time consuming exercise, you get the picture. Northland will be getting plenty no doubt.
The other regions may not be quite that lucky and as we know these processes take time, a lot of time. But who knows perhaps after 3 years, if the coalition lasts this long, there may have been a billion spent in the regions.
I still believe that the best thing to do to create long term jobs in the regions is to move government departments there. With current technology they can be anywhere. Spread them into the country and I don't mean the larger regional cities. With the move of the departments and the influx of people there, more houses will need to be build, more services etc and the regions will get the lift needed. Yes that is costly but when building a bridge or widening a road the work dries up again after the job is done. No long term benefit in regards to employment (but it does create soundbites and that is votes).
Wellington City of course won't like that so expect head winds from there.
Certainly not a 3 year project and it will need an all party approach and long term commitment.
Ah, now there is the problem.
There are no votes in long term thinking these days.


How dare a country vote for a hands-on Government who may actually attempt to make interventionist decisions for its citizens?! Don’t NZers realise that large global corporations and banks rule this world?
Watch out for the large corporate backlash and political interference ahead.

History doesn’t support the inference in your post that increased central government control of the economy and business produces better long term outcomes for its citizens. Unpalatable as the more extreme manifestations of capitalism are (Trump, GFC etc) the less interventionist and more globalist approach to business of the last few decades has, on balance, delivered a remarkable improvement in the lot of we humans.

Reverting to 1970’s style industrial relations policies is not ‘interventionist’ in the sense of being something positive, it’s a regression that opens the door to union led destruction of of business activity and equity. I lived through those times and observed (and suffered) the consequences. There will be a honeymoon period but the Neanderthal set within the unions will gradually assert itself. Some old lessons will need to be relearned.

Exactly. We have more than half the voting population who have never experienced the dire results of givng legal control over employment to union mafia. Perhaps it is a lesson that needs to be re-learnt through direct experience, as our ignorant leftist friends seem unable to learn from history. Dark days are coming, businesses will retrench and stop hiring, and there will be a recession next year. Ironically the older and wiser right wingers are the ones who can see the signs and have already moved to protect themselves. It is the younger less economically secure who will suffer for labours corruption (paying off their union financiers) and idiocy.

Foyle. I get younger idealistic folk placing their hope in an inexperienced but charismatic and polished orator. I, for a while, admired David Lange.

But the only explanation for fossils of my age who witnessed at first hand the union led carnage wreaked on this great little country, yet still advocate a return to the same Polish shipyard era unionisation, is wilful blindness, destructive intent or alhziemers.

Not that the coalitions moves will personally cause me much harm. Already, the uncertainty they have created has been very profitable. And the high spending party times they are about to unleash will be great for my business interests. The hangover will come of course. But now I’m sounding like a pooper. Let the good times roll, what could possibly go wrong !

The carnage of Rogernomics and subsequent Ruthenasia, then Rogernomics lite (JK) certainly helped the large corporations make a lot of money from NZ citizens.
It won’t hurt employers to pay higher wages, & it won’t hurt NZ to keep infrastructure & services running - as was done in the 50s to 70s. We are still benefiting from Govt lead infrastructure pre-Rogernomics
Of course Richard Prebble is upset!

"It won’t hurt employers to pay higher wages"

The point isn't to whether employers are hurt or not. The point is the costs will be passed through by these employers to their customers driving up the cost of what they sell.

My local Pack N Save employs some 300 staff and is in no way able to absorb the wage increase. Everything at Pack N Save will increase in cost.

The good old days weren't. Unless you were there it is probably hard for you to comprehend just how appalling things were in 70's-early 80's nz, but it really should be required education for all NZers under the age of 50.

So repeating this tired old lie about labour's policies of the 80's (and Nationals follow-ups) that saved us from the destructive statism of Muldoon and launched NZ onto a 30 year long path of rapidly improving prosperity and personal economic freedom and lifestyle improvements reveals only an absence of comprehension of basic economics and extreme blindness to historical realities or a failing memory. Statism and command economies don't work unless you have vastly richer markets to sell into to compensate for the hugely inefficient practises it creates (and even then it is only China has overcome the inherent disadvantages).

A slight movement to the left, and a government that seeks to serve its citizens rather than the global elite, is a far cry from a Command Economy.
There have been many good things, and a way of life within NZ which were destroyed by Rogernomics and Neoliberalism including jobs for workers who are now on the scrap heap, training in-house for young NZers, Govt responsibility for infrastructure, Govt responsibility for schools and hospitals, and an equality across income/status levels, while still encouraging business activity.
Of course the neoliberal agenda seeks to dismantle all of societies institutions so commercial financial agendas can control all aspects of society - which will end up as a form of Socialism itself ironically.

Give us your picture of what New Zealand would have been had Roger Douglas not dished out the medicine to fix the bankruptcy inherited from Muldoon

Douglas didn't destroy NZ's way of life, he salvaged what he could, Muldoon the Reckless did the damage

A similar situation exists today. By imposing 9 years of sloth and lethargy Nationals have done critical damage to NZ society. Sure, economically, they have achieved a surplus, but at the expense of an austerity program of underfunding that has created an underclass and produced swathes of down-and-outers, homeless and garage-dwellers

National's re-engineering of NZ society has been criminal and will takes years to correct but can never return our lost-society back to what is once was

Medicine can be given expertly, rather than sawing off limbs etc.
Douglas destroyed many things, and handed them over to the merchant banks and corporates who stripped the value, sold them, then retired to Switzerland or wherever. Leaving the empty shells for NZ.
Well, you can’t have it both ways - National have simply continued the orthodoxy while maintaining social welfare for everyone via WFF etc - quite brilliant really Rogernomics by stealth.
Didn’t you realise that austerity to all public institutions is part of the Rogernomics / Neoliberal agenda? Why would they fund institutions they need to dismantle?

The seventies were completely disfunctional in so many ways. Imagine if the internet only worked on 3 or 4 days a week because of strikes. That is what the seventies were like, someone was always on strike. I guess you had to be there.

Less screen time = better mental health!
In the 70s many people who are now on social benefits & now generations of, worked. They worked in the Railways, Meat Works, Min of Works, apprenticeships, etc. What appears to be ‘inefficiency’ can have anoverall social & systems benefit.

Sound comments !-and to exacerbate the problem we now have a government who's intent is to worsen our welfare system with an invitation to the Australian government to take in more refugees who are allowed permanent residence with no skills and some will stay on the welfare system till the end of their days-what ever happened to the saying "Charity begins at home", we can easily cancel the agreement with the UNHCR as it does nothing for our country and we have to suffer for the problems which emanated from warmongering countries like Russia, U S A , U K etc etc-let them sort out the problem and we can spend money on improving the life of unfortunate New Zealanders-If I am wrong in my thinking then I would like to see a referendum to decide if we should continue to allow the influx of refugees . Finally, the government just cannot see what future problems we will have as one only has to look at overseas to see what has happened by allowing refugees in ??? -It must always be remembered that governments are elected by the people to serve the people-NO THEIR OWN AGENDAS.

Just remember that National intervened big time in Think Big projects - some of which turned into very expensive white elephants.

Transport options for example in AKL should be devised by qualified transport engineers - not politicians with no expertise in transport whatsoever.

Hands on may end up very expensive !

Being hands on does NOT preclude using best expertise available. Too much stupid prejudging from self interested National supporters. Keep to facts not guesses. Current fact is nine years of National's hands off uselessness that needs fixing.

Please don’t tell me that cancellation of the East West link was made after detailed analysis and trade offs with transport engineers who have worked for years on this project.

Just a mad political wim to green activists who would have all transport on public facilities.

No thought of where the busses are going to travel under this happy state of nirvana.

No thought of how commercial traffic is going to move.

When these decisions get to select committee where National will have a substantial majority - many of these mad initiatives will not emerge unscathed from careful scrutiny.

The implications of National dominating the select committees has not yet sunk in.

All the fun of the fair coming up !

No the cancellation has been made after a 14yo schoolgirl noted that shoving "the world's most expensive world" in the Onehunga seashore was total BS. Don't need a biased transport engineer when you have integrity.

Yeah, it don't quite understand BE's point either. Membership of Select Committees is based on the same proportionality as Parliament. Sure, National might have the largest single-party representation on some Committees but no majority and certainly no "substantial majority" provided the coalition partners all vote with their own Executive.

Kate - I think it's just the fact the committees are so much smaller that the numbers will deliver National majority.

Perhaps someone with more knowledge on this issue can comment ?

... the estimated cost of the East West Link has escalated to as much as 1.8 billion dollars.

We’ve previously analysed the costs and benefits of the various route options, and found that the best “bang for buck” actually comes from the cheaper options that were assessed. Using an incremental approach, the BCR of NZTA’s chosen option over cheaper options actually comes out negative. In other words, the increased benefits of the NZTA’s chosen option aren’t enough to overcome the increased cost.

If Finance Minister Steven Joyce was sincere with his recent call for greater discipline in assessing the benefits of large infrastructure projects, he need look no further than the East West Link.

No, it seems to be primarily because the East West link didn't make sense economically:

We're all just guessing future outcome now. It will be very interesting indeed to see how NZ has changed in say 9 years time if the centrist-left stays in power. I say this without any sarcasm.

'interesting' like the apocryphal chinese curse "may you live in interesting times"

The venomous stream of apocalyptic poison issuing forth from the apocalyptica will become self-fulfilling

so Labour and Greens and their supporters (including practically all media in NZ), complaining and moaning about every breath that National took for the last 9 years is all good, but when in opposition the majority party National and their supporters (or those simply extremely worried by the Greebour1st vision for NZ) start pointing out the dire consequences of what their policies will lead to that is beyond the pale? Do you not see the naked hypocrisy of this stance?? Or are you channelling Stalin and his "wreckers" propaganda?

All together now - simon says

Every single Offeror of Patronage, Influencer, Vested Interest, Urger, Shyster, Pusher, Manicurist, dealer, booster, Peak Body, Peddlers of influence, Power Broker, Rent Seeker, Lobbyist, Captains of Industry have come out against - the lot

Labour won, National lost.
Corporate raiders & corporate elite find it so hard to adjust to the new reality.

The only thing Labour won is the ( Winston's) ass kissing context.

Such a pity Whale Oil, Black Ops, & Dirty Politics couldn’t swing it this time..
So we have a Labour Prime Minister, as a result of a democratic MMP election.
Long live unions, Govt funding for hospitals, useful infrastructure being built, regional development, employer funding for young NZer apprentices, brakes on foreign buying, & a rest from National politicians.

I didn't know Winston had a donkey.

I don't see the current government as anti capitalist they are more about corrupt no tax paying capitalist . Always amuses me how currencies drop at the mention of fairer government , when better distribution of wealth as a rule creates more spending and growth.