How will financial markets perform
in the aftermath of the election, and would a National victory prompt a rally in share prices?
I looked at the past 10 elections, which takes us back to 1993, when Jim Bolger’s National Party won a second term.
In those 30 years, there have been five victories apiece for our two major parties, Labour and National.
On six of those 10 occasions, the sharemarket has pushed higher in the following 90 days, with an average gain of 2.7 per cent.
When it’s been a win for National, the average gain has been stronger at 4.6 per cent.
When Labour has emerged triumphant, the average post-election rise has been 0.9 per cent. That’s more subdued, but it’s a rise nonetheless.
At face value, it appears the market has typically cheered a National victory more than a Labour one.
This makes some sense, with the former generally considered to be a more business-friendly party.
Having said that, there are many factors that impact the economy and the business environment just as much as (if not more than) the political backdrop.
The 2008 election is an obvious example.
We were in the thick of the GFC at the time, and the New Zealand sharemarket had already fallen more than 20 per cent from its peak the previous year.
Sir John Key’s National Party won in August 2008, and the market kept falling until it finally found a bottom in March 2009.
If we exclude 2008 from our analysis, the average sharemarket return in the 90 days following a National victory jumps to 5.8 per cent.
Another period that stands out is 1993, when the sharemarket rallied strongly after the election. This period has boosted the average gain for when National has won.
If we exclude 1993 as well, we’re back at 3.3 per cent for a post-National rally. Less impressive, but still above average.
Looking at moves in fixed income and the NZ dollar in the wake of past elections, we’ve generally seen conservative assets rise in value and the currency find a bit of support.
Bonds have produced positive returns seven out of 10 times, while the currency has increased on eight of 10 occasions with an average gain of about 1 per cent.
Again, the 2008 election is a major outlier.
At that time, interest rates were collapsing because of increasing risk aversion (pushing bond values up), while the currency had slumped from US$0.80 to US$0.70 and was headed for a low of US$0.49 about six months later.
That example aside, one can generally deduce fixed income has traditionally performed solidly after elections and the currency has found a bit of support.
Excluding 2008, the NZ dollar has gained 3.5 per cent (on average) following a National party victory and 1.6 per cent after a Labour win.
The economic and market backdrop during any election period is always unique, and 2023 is certainly no different.
However, the past 30 years suggest the market has typically performed well in the aftermath of an election, more so when we’ve seen a National victory.
One thing that’s much less ambiguous is the fact that whoever ends up in Parliament will inherit a very challenging economic backdrop.
The dairy sector is under pressure, our fiscal position has deteriorated and we’ve got an inflation problem that’s proving hard to get on top of.
Elections can impact investor sentiment and business confidence, but share prices will ultimately be driven by the path of the economy and corporate earnings.
We’ll have to wait until after October 14 to see how these challenges influence the post-election market performance.
Mark Lister is Investment Director at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals, or risk tolerance. Before making any investment decision, Craigs Investment Partners recommends you contact an investment adviser.
