All parties keeping their eyes on the prize

TERRY HALL
Last updated 08:56 23/12/2013

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OPINION: It is somehow appropriate for investors - who supposedly love numbers - that the year 2013 is ending all at sixes and sevens, a state of confusion. Prospects for next year are also murky: good for some; cloudy for others.

Some say the property markets will keep on fizzing: others that high interest rates will take the steam from it. I've been watching a steady stream of car transport ships unload vehicles all week at Wellington, confirming reports that consumers are spending again.

This year some made good money by trading interest rate securities, especially for perpetual bonds where some values rose 30 per cent or more.

Some banks and companies that borrowed five-year bonds earlier this year - ahead of the rises now anticipated next year- will be congratulating themselves for securing cheaper money.

It is not such a happy state of affairs for many equity investors. Australian share prices after a good run are easing back in line with the poorer economic outlook, adding to the woes of Kiwi investors who own shares there who have suffered a sharp reduction in their worth and dividend incomes with the New Zealand dollar rising strongly against its Aussie counterpart.

After a good run, most Kiwi shares are trading well below their highs for the year. This seems decidedly odd given that the share market is supposed to be forward looking: and latest government statistics and business and farming surveys portray next year's economic prospects as the best we've had for ages which should be great for shares.

Prices did pick up marginally after the highly positive lead from the United States Federal Reserve with its minimal easing in money printing and promise to keep short term interest rates way down for the foreseeable future.

However, that is a US story: here rises were surprisingly muted: especially as share prices normally rise strongly at this time of the year. That suggests something else is afoot.

So what is happening? Both Kiwi and, worryingly, also overseas investors have been dumping stocks. They have become fixated with political and regulatory risks (the Commerce Commission is a bogeyman).

To a lesser extent some locals are concerned at the relatively modest interest rate rises expected next year.

Increasingly gloomy traders and market newsletters are telling investors of the likelihood of a Labour-Greens partnership victory in next year's elections: it appears to be already priced into some share prices.

Investors also have long memories and are particularly wary of Labour leader David Cunliffe, who was a polarising and outspoken minister of telecommunications from 2005 to 2008 when Telecom, then with thousands of local shareholders, was a popular political target.

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In May 2006 he announced a major package that included giving rival telcos access to Telecom's copper network.

Between May 1 and August 15 Telecom's share price slumped from $5.75 to $3.93 as the company was restructured, leading to the head office moving to Auckland with sizeable loss of jobs. At this time Mr Cunliffe also enhanced the Commerce Commission's monitoring of the telecommunications sector that continues to upset investors and cause controversy to this day.

Finance Minister Bill English has talked of having a check on whether regulatory settings are up to world standard: this would seem timely.

Mighty River has been especially hard hit by expectations of a change of government, falling 50 cents below the issue price. It is rumoured that the coalition will impose a "poll tax"charge on the commercial use of water, including that used by company hydro stations and by irrigation concerns.

First NZ Capital said last week that the chance of a Labour- Greens coalition government was being priced into shares.

It said the new government was likely to introduce more redistributive welfare policies, higher income and capital gains taxes and be more sympathetic to union interests.

It expects more direct government intervention in the economy, particularly in sectors with regulatory risk, and that this "risk premium" will increase over the coming months.

FNZC brokers say that the most negative impact (of a Labour- Greens government) would be to the energy utilities (Contact, Meridian, Mighty River, and TrustPower) and stocks exposed to the regulators, including Sky City and Chorus. Conversely, they reckon that Fletcher Building and Methven might derive benefits from the Labour -Green housing policies. Sanford and Fisher and Paykel Healthcare could be beneficiaries if the Kiwi dollar falls on election uncertainties.

As things stand, the Key government's well intentioned plans to reinvigorate the New Zealand equity markets have come unstuck by opponents' political promises for tougher regulation especially on the energy sector, and the regulator's controversial approach to Chorus. Overseas fund managers have been dumping stocks. Like all investors, they hate uncertainty.

If the past is any guide, equity markets could be increasingly hesitant as the election approaches later next year. After that, who knows?

First NZ Capital said last week that the re-election of a National government was likely to be greeted positively by investors and lead to a market rebound.

With the country's economic prospects looking better, opposition parties can be expected to be even more determined to secure power next year and offer even bigger goodies to voters. It should be a prize worth having: a long spell in power for the victors in a stronger economy.

- Fairfax Media

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