Labour gets a tick from offshore investors

The Prime Minister may have snapped her fingers and called an early election, but the markets have hardly moved.

Normally in the lead up to a general election uncertainty spooks markets and often there is an outflow of money from the country.

This year it's the total opposite, even though it's a Labour-led government. The markets haven't budged and many businesses and investors are pleased that the election is happening early.

Sydney-based analyst with Macquarie Bank Richard Gibbs says the decision to go to the polls removes the uncertainty around the date, avoids the possibility of fragmentation within the coalition and allows Labour to capitalise on its poll ratings.

While Labour's opposition, both on the left and the right, aren't too keen on the party winning an outright majority, offshore investors consider it a favourable outcome.

Gibbs says such an outcome would be welcomed.

The main reason for this view is that Labour could get on and govern the country without having to negotiate policies with other parties.

He says policy direction is likely to be "clearer and unimpeded."

"Really in terms of a lot of investors perceptions it would get you back to almost pre-MMP Parliament style," he says. "That was a hallmark of the reform period."

"It may also to some extent moderate the tendency under MMP to increase the scope of representation for minor parties which some investors like myself don't always regard as positive for public administration as opposed to democracy."

Gibbs says if Labour scored an outright win there would be some narrowing of the risk premium between the United States and New Zealand.

Despite being a left wing party investors are likely to be reasonably comfortable with the policy direction of Labour.

"In the international spectrum I would put (Labour) as a centre party. Certainly the finance minister I would place squarely there."

The other unusual characteristic in the lead up to this election is the direction capital is flowing.

Often in the build up to an election investors move their money offshore because of the uncertainty over the event.

This time around, with Labour polling so strongly, the opposite is the case - money is flowing into New Zealand at a swift rate.

Gibbs explains this by saying that historically capital has left the country when people think there is going to be a change of Government, and therefore some unknowns around policy direction.

He says a bigger issue for the Government is going to be managing the upside of these money flows.

You can read Philip's blog here: http://www.goodreturns.co.nz/blog/

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