Back
06 Dec 2016

John Key’s resignation

John Key
John Key’s resignation came as a surprise to many. (Credit: Fábio Rodrigues Pozzebom via Wikimedia)


By Tim Chesterfield, Chief Investment Officer

John Key stepping down yesterday came as a shock to many. As I have said consistently, political uncertainty is not a good thing when it comes to investment markets. We have become accustomed to it in other parts of the world, but not so much in New Zealand.

In the short term nothing much will change but uncertainty around future policy will create some nervousness. At a minimum, it will give business leaders some pause for thought as they contemplate their investment plans and this will undoubtedly be reflected in the business confidence index and, perhaps, employment. However, these are secondary indicators and reactionary to events rather than indicators of the future. Besides, government only influences economic forces – it doesn’t set them!

The New Zealand economy is firing on 11 out of 12 cylinders – powering us forward, with the remaining one, dairy, on its way to recovery. This will be hard to slow down anytime soon as many of the macro factors (housing, construction, migration, tourism etc.) continue to do well.

It is important now to squash any uncertainty the resignation has created. The National Party is moving to elect a new leader at the party caucus on December 12. It is worth noting that the senior leadership currently remains unchanged and Bill English, Finance Minister, remains in place.

Without knowing for certain who will become the new Prime Minister, it is a little difficult to ascertain what the full implications of this resignation by such an influential – and it seems liked – leader will be. He has certainly been successful in ushering in change and it is hoped the new incumbent will be equally adept – but, as always, the shape of new policies will be partially shaped by the coalition.

With 18 November 2017 being the last day for the 2017 election to be held, there is just under a year left of the current government and we shall have to watch how other parties position themselves in the months ahead. Investment markets do not like uncertainty and this was best demonstrated by a sudden drop in the NZD. However, given the economic backdrop, I remain unconvinced that this weakness will be enduring.

I look forward to next week when the identity of the next Prime Minister is known and will write on what it all might mean then.

PerpetualGiving
Guardian Trust
Ewills
Bereavement Helpline
FSCL

Perpetual Guardian is a trading name of The New Zealand Guardian Trust Company Limited and Perpetual Trust Limited. For Authorised Financial Advisers, a disclosure statement is available upon request and free of charge.