Pie Funds Founder and CIO Mike Taylor joins NZ Herald Business Editor at Large Liam Dann to talk about how much risk investors should be taking in this current climate.
Video / NZHerald
What does the coming election mean for investors? Is recent NZX weakness a symptom of political malaise? Can a change of government move the market?
Despite the fact that we all get consumed by the drama of a general election, the reality is that market performance tends to be divorcedfrom domestic politics, says Pie Funds chief investment officer Mike Taylor.
“The NZX has been a bit weaker the last sort of month or six weeks, but that’s probably more to do with what’s going on in global markets than what’s going on in our own economy and the upcoming election,” says Taylor.
He has looked back at market performance around elections, going back to 2002.
In the seven elections since 2000, the Kiwi market has been positive 12 months later on every occasion, regardless of the ruling party or parties. That might be a good sign for long-suffering local investors with the NZX50 off 3 per cent in the year to date.
But, in reality, the direction for the NZX was more closely linked with what’s happening in global markets than local politics, Taylor says, noting that both major parties are relatively centrist.
“There really isn’t any sort of noticeable trend, whether it’s Left or Right in power,” he says. “It’s very difficult to say, yes, if National gets in, then the economy or the markets will do well or, or Labour or does vice versa.”
“Going into the 2023 election, with the country already in recession, the best outcome we can hope for is that the new government (National-led or Labour-led) is formed quickly and that political uncertainty is put to bed as quickly as possible.”
Outside the listed sector, commentators have suggested that the political uncertainty might be contributing to low levels of business confidence and the pause on the property market.
But Taylor said the NZX wasn’t as reflective of the wider New Zealand economy.
“We’re just a small cork in a big ocean and we just tend to just follow what’s happening globally,” he said of recent market moves.
The NZX50 has drifted off by more than 6 per cent since the start of August.
If the election resulted in a shift to the Right, then some of their proposed policies might be beneficial for business, Taylor said.
“There’d be some more certainty, there’d be some tax cuts for consumers, but on the flip side, there would be a reduction in government spending which might net out neutral,” he said. “But I think probably there would be an improvement in business confidence.”
If New Zealand was in real economic trouble, then obviously that would affect our market or if we had runaway inflation, then we would be more focused on what’s happening domestically, he said.
That drum beat is really the same as it has been since the beginning of 2022, Taylor said.
Pie Funds chief investment officer Mike Taylor.
“Which is interest rates. We’ve gone through periods where rates have run up and then they’ve come back a bit and we’re currently in a period where rates are running up again.
The big driver was the talk coming out of the US Federal Reserve, which suggested rates were going to need to stay higher for longer, he said.
So the real questions for market watchers remain: how strong is the US economy, and can they get inflation down without crashing it?
Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist, and also presents and produces videos and podcasts. He joined the Herald in 2003.
The Market Watch video show is produced in partnership with Pie Funds.
