The Government’s economic priorities, the support businesses need to participate in our post-COVID recovery and the relationship between the markets and monetary policy were all topics on the table around which Nikko AM NZ’s George Carter, Stuart Williams, Fergus McDonald and Simon Haines sat down this week in the aftermath of Saturday’s electoral ‘redwash’.
While the needs of business were hard to crystalise, given the breadth of the sector extends from small family-run firms to market-listed behemoths, all agreed that the Government’s focus should be on employment as a means to avert poor socio-economic outcomes.
Stuart Williams, Nikko AM NZ’s Head of Equity, cautioned against too much Government involvement, saying that successful recovery for business might be accelerated more by what they don’t do, than what they do.
“The minimum wage has gone up over 20% in the last three years – and there is no business in New Zealand that has had revenue growth of this magnitude in the same period. So expecting the owner to always be the person who always takes less, when they are taking all the risk, is probably not the right way to go.”
Tax was also viewed as an instrument poorly equipped to aid recovery, as Managing Director, George Carter, explains.
“Putting taxes up doesn’t create anything. If someone pays a bit more tax, it means they’re going to spend a bit less – maybe they’re not going to pay for a cleaner, or gardener, or give less to charity. It doesn’t change the size of the pie – and the only way we’re going to improve the situation is to increase the size of the pie, not argue over how we’re going to slice it.”
While not the panacea, Head of Bonds and Currency, Fergus McDonald, says monetary policy and the role of the Reserve Bank will be crucial. And although the RBNZ has other levers to pull, a drop of the OCR to -50 and a sustained period of ultra-low interest rates is likely. So what does this all mean for investors?
“Per head of population, New Zealand has seen the most amount of debt issued by a government and most amount of fiscal spend per head of population also, anywhere in the world. Therefore it’s not surprising that our equity market is on a bull run, and it’s not surprising that our property markets, both residential and commercial, are at all-time highs too,” says McDonald.
“With asset prices riding high across all sectors, and low interest rates set to stay, it’s hard to see the catalyst that’s going to pop this bubble.”
With term deposits offering little in the way of yield, McDonald says there has been a bigger flow of money into domestic equities, particularly those paying quite high dividends in a sustainable way, and also into residential property where rental yields, while low by historical comparison, are still significantly greater than what’s available from putting money in the bank.
As Chief Counsel, Simon Haines, points out, this is the very reason Nikko AM NZ has recently introduced its 3% p/a Income Fund.