How will the general election affect your investments?
Focus on the long term when assessing risks to your portfolio in the run-up to next month’s general elections, say the experts.
“It is important to note that volatility in the markets is a result of emotion driving investing, and not the actual election itself.” – WARREN COUILLAULT
The best way for investors to prepare for market volatility before, and subsequent to, the New Zealand election is to focus on broad economic trends and keep a long-term perspective, says Warren Couillault, managing director of investment advisory and wealthmanagement firm Hobson Wealth Partners. “Keeping a long-term perspective will help you make better decisions and alleviate risks to your portfolio,” he says. “The old adage is that the risk is not necessarily the volatility itself, but rather the approach you take to dealing with the volatility.” Couillault says the factors that traditionally influence the outcome of a general election – the status and popularity of party leaders, their respective manifestos, and the “mood” of the electorate – will obviously play their part in the 2017 election, but he believes the strength of the economy is likely to be the key determinant in deciding which party will come out on top. “Not everyone is affected by a party’s education policy, because not everyone has children. Not everyone is fully up to speed on international issues to fully comprehend a party’s stance on immigration,” he says. “But most, if not all people, do care about their money and financial assets, the state of the financial markets where they invest their money, the security of their jobs and their job prospects.” Couillault points to the outcome of last year’s US presidential elections, and says historical data in the US proves that if the American economy is strong, Americans will usually vote for the same party or candidate, but when times are tough, they will demand change. “Research shows that more than 80% of times when the Standard & Poor’s 500 (S&P 500) has been strong in the three months leading into the election, the incumbent party – or more accurately the presidential candidate – has won. The same applies when the market has been weak over the same period – more than 80% of the time the opposition party or candidate has won.” Financial markets typically respond better to elections when outcomes are more predictable, because if there is one thing the markets hate, it is uncertainty and surprises. “But it is important to note that volatility in the markets is a result of emotion driving investing, and not the actual election itself. On the surface, it may seem that the National Party policies and approach are more businessfriendly than those parties on the left side of the spectrum. So one would expect the markets to favour a clear National victory.” It’s easy to jump to conclusions about what effect the election’s outcome will have on markets and investment portfolios, he says, but it’s worth remembering that whoever is elected on September 23 has only three years, and more than likely no more than nine years, in power. “You on the other hand are investing for the long, long term.” Hobson Wealth is named in recognition of New Zealand’s first Governor, Captain William Hobson, and like the early navigator, administrator and visionary, the firm sees itself as quietly shaping futures.