The big four wait on Winston
The final election results released in New Zealand over the weekend showed what many had suspected - that the special votes would go to the Jacinda Aden’s Labor party and the Greens.
The final coalition remains unclear until the kingmaker- New Zealand First leader Winston Peters - decides who he will team up with this Thursday.
Australia’s major banks are also nervously awaiting Winston’s Thursday deadline with centre-left’s housing policy a concern.
While National won the biggest share of last month’s vote, the chances of winning a fourth term in office has decreased over the weekend as National lost two seats and the Labour and Green parties each picked up one after the special votes were tallied.
Both the ruling National Party and Labor opposition need the support of New Zealand First to reach a majority in parliament.
Housing the sticking point
“If a Labor Government was to be elected, it could negatively affect housing valuations due to the party's intended policy changes to negative gearing, capital gains tax, foreign investment and slowing migration,” according to Morgan Stanley analysts.
Such is the fear of a less market-friendly government, that the Kiwi plunged by 0.6 per cent against the greenback on Monday to US 70.53 before recovering to 70.71c after final vote tally showed both main parties could form viable coalitions.
"It could be a rocky road for New Zealand financial markets as we head towards Thursday, with a particular risk of volatility if coalition talks end up being extended," ASB economists noted.
"We also see more risk of financial market volatility if a Labour-Greens-NZ First coalition was successful, simply because there is more uncertainty associated with a Labour-led government - including markets being less familiar with the people and policies.”
Aussie banks affected by centre-left govenrment
According to Morgan Stanley, ANZ has the highest New Zealand earnings exposure at 20 per cent based on 2017 first half results, with National Australia Bank next on 13 per cent, Westpac at 11 per cent and Commonwealth Bank at 10 per cent.
"All else equal, we calculate that a 25 basis point increase in impairment charges to total loans for the New Zealand book would have a 3 per cent impact on 2018 profit at ANZ, 2 per cent at NAB and 1.5 per cent at Westpac and CBA.”
The banking analysts claimed ANZ also has the highest proportion of loans from New Zealand at 19 per cent, while CBA has recently grown its New Zealand loan book faster than the other majors.
Morgan Stanley also calculated that a 5 per cent fall in the Kiwi against the Australian dollar would reduce earnings by 1 per cent at ANZ and 0.5 per cent at the other majors.
"However, we believe the potential impact of this would be delayed with the banks hedging the next 12 months of earnings: CBA and Westpac hedge close to 100 per cent of projected New Zealand earnings, ANZ hedges 50 per cent while NAB proactively manages its risks.”