Markets stable - unless coalition talks stall

Roger Kerr. Picture / Glenn Jeffrey

The inconclusive result from Saturday's nail-biting election won't see New Zealand's financial markets tumble when they open this morning - but there's no doubt business would have preferred a clear victor.

"We needed this to be fairly conclusive and it hasn't been and that's a poor outcome at this point," said Tower Group chief executive Jim Minto yesterday.

His opinion was echoed by a number of other big investors, including AXA's chief executive Ralph Stewart.

"It's disappointing. New Zealand business, as always, needs as much certainty as possible," he said.

While it may be disappointing to many voters and anti-climactic for all, Saturday's result - which saw Labour finish ahead by a nose - wasn't entirely unexpected.

Those the Business Herald spoke to yesterday expected Labour would likely form a governing coalition. While most would have favoured a National Party victory, they hoped Labour would take heed of voters' desire for tax cuts, the promise of which helped sweep National leader Don Brash and his finance spokesman John Key to within spitting distance of a win.

Brook Asset Management executive director Paul Glass noted Labour had won only 40 per cent of the vote. "You would hope that being a relatively pragmatic bunch they might just look at that and say: "We have received quite a strong signal from the electorate that they are not happy with some of our policies and the broader electorate does see some scope for reducing taxation."

While Glass believed a clear-cut National Party victory would have provided some immediate upside for markets, nobody was expecting dramatic movements when they opened this morning. Business Roundtable chief executive Roger Kerr agreed.

"Participants in markets would have factored in some level of probability that with our MMP system you would end up with an inconclusive result," he said. "I think it will be largely business as usual."

But Business NZ chief executive Phil O'Reilly said there could be problems if there was no clear result in sight after coalition talks.

"A few weeks of negotiation won't be a problem. Where the problem will occur is if that few weeks turns into a very long period."

He believes that the professionalism shown these days by most politicians meant that was unlikely, but he also saw a bigger threat.

"More of an issue is that you get a coalition formed which looks, or is in fact, rather unstable. I think that really is the issue that will cause corrosion in business confidence."

AXA's Stewart said the likely shape of a Labour-led coalition or other arrangement - likely including the Greens, their bitter rivals United Future and possibly NZ First - would be complicated and volatile.

"Coalition government doesn't look as easy going forward as it has been for the past three years."

That was especially true as New Zealand headed into a period of economic uncertainty after years of good growth.

Fisher Funds Management's Warren Couillault said with less buoyant economic times looking likely, "a stymied parliament might not be all that great".

Labour had experience in forming coalition governments. "Unfortunately you might get undue influence from a number of the very small parties," said Couillault.

If, for example, the Greens were to make it into the Cabinet and have anything to do with transport or finance, "there would be a degree of concern" on the markets.

The Business Roundtable's Kerr said he'd be "very concerned" about a stronger Green influence in areas like energy and transport.

Auckland Chamber of Commerce chief executive Michael Barnett wasn't alarmed by the prospect of a diverse coalition Government.

"The result is probably a pretty good reflection of the melting pot that makes up New Zealand.

"If the politicians are as principled as they would have us believe, I would have thought that piecing together a coalition would be fairly straightforward."

Barnett said one thing he would like to see come out of the closely fought election was "business and the next Government build a better and stronger relationship".

Kerr was similarly hopeful. "Helen Clark to her credit has showed herself to be pragmatic, she was speaking [on Saturday night] about being inclusive, I hope that might involve more listening to the business community."