Businesses won't be as worried as they were in 2017 if Labour win the upcoming election, an investment manager says.
The bigger problem for the New Zealand economy is what happens in the US election a couple of weeks later, Milford Asset Management portfolio manager Mark Riggall told The AM Show on Thursday.
"Elections are bad for markets because they create uncertainty - we might have a change in Government. Markets don't like uncertainty."
When Labour formed a coalition with New Zealand First to take power in 2017, business confidence dove sharply - investors fearing changes introduced by the new centre-left Government would hurt their prospects.
But Riggall said those fears have been proven unfounded, with the markets holding up and the Government's handling of the biggest economic shock in a century "saving the economy".
"Fiscal policy has been swift and it's been significant, the biggest since World War II... So the stakes are very high, because any chance in that fiscal outlook could change the path of economic growth."
Aside from a small dip in late 2018 and the steep dive in March as the scope of the COVID-19 pandemic became clear, the NZX 50 has continued on much the same upward trajectory it did during the previous National-led Government.
"If we cast our minds back three years ago to when we had a change in Government, remember business confidence took a sharp step lower," said Riggall.
"But this time around, a status quo outcome - which if what it looks like we're going to get - would be less of a change. Also we've seen the Labour Government has been a safe pair of hands, economically a safe pair of hands.
"So I think businesses, they've got reason to be cautious - some of the policies at the outset are less business-friendly, you've got rising minimum wages, you've got more sick leave, you've got more taxes - so at the margin they're negative for businesses, but the fiscal piece looks to be still in place."
Some economists, including AM Show regular Cameron Bagrie, say business confidence is a useless predictor on its own. Bagrie last year called it "politically biased", tending to drop whenever Labour was in charge regardless of how the economy is doing.
US election impact 'bigger'
The US economy, the world's largest and our third-biggest trading partner, has a large impact on our own. With it looking likely Labour will stay in power here, Riggall says what happens in November across the Pacific will have massive implications for us.
"The US election I think has a bigger bearing potentially on even New Zealand markets, than the New Zealand [election] - that's because in the US you could get a change of government. The polls and the betting markets have Biden as favourite. Investors think that Democrats are worse for share markets."
He said polls of investors have shown they expect a 10 percent fall in the US share market if Joe Biden defeats Donald Trump.
"Markets have actually enjoyed the Trump administration."
The US Dow Jones Industrial Average rose markedly during Trump's first two years as US President, but has been rocky since the start of 2018. It hit an all-time high in February, right before the pandemic hit the US hard. It has yet to reach those heights again. The NZX 50 briefly topped its pre-pandemic high in August.
