Election 2020 and Stock Market Trends to Watch

Summary

• New Zealand’s election 2020 compared to other polls is expected to be like chalk and cheese, with the ongoing pandemic scenario making the overall focus quite different.
• The uncertainty concerning the future leadership in NZ coupled with pandemic volatility can drive the investors to hedge their portfolio via diversification while some may also look for an opportunity from the short-term imperfections around the market.
• Majority of previous elections indicate a positive stock market trend during the election month in New Zealand.
• The present year resembles the year of Financial crisis when during the election month, NZ stock market witnessed negative returns. Nevertheless, the degree of impact of individual impacts cannot be isolated.
• Tech stocks and Consumer staples, which received a significant boost during the lockdown, continue to show positive trends.

Building an extraordinary success story against the pandemic when the other parts of the world continue to grapple with ongoing infection scenario, New Zealand appears to be in a catbird seat to emerge out of the aftermath of the pandemic. The country after marking 102 days without any community infection saw four locally transmitted cases on the night of 11 August 2020, leading to Auckland lockdown. Nevertheless, the pent-up activities and regaining of growth acceleration is expected to catapult the country’s progress

Furthermore, the impressive journey built on the strategic and timely placed measures has allowed Kiwis to pursue their daily activities, though the fear of contracting an infection is receding slowly.

The stabilising scenario in terms of customers returning and people shirking off their negative sentiments can be witnessed writ large on the stock market front. S&P/NZX 50 giving YTD return of 1.04% and QTD return of 2.51% as of 19 August 2020 after it saw massive slumps during March and April 2020. Vanquishing the virus, the island country which has earned the badge of ‘safe have’ appears ready to witness another critical clash, this time on the political grounds of the country.

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The NZ election to be held on 17 October 2020 has become the seismic source, and the political buzz seems to catch up with the already volatile stock market movements. Let us explore how the election, together with pandemic impacts seems to foster stock market trends.

Double-Fold Effect on the Stock Market

The stock market seems to bustle typically with dual forces including this year’s election and the pandemic, that together seems to navigate investors sentiments. The rivals Arden’s Labour Party and the National Party lead by Judith Collins seems to adopt a similar pollical stance targeting the economic stability of the NZ workforce.

However, the uncertainty concerning the political leadership is expected to have an impact on investor’s psychology. Traders in the current election scenario seem to be eyeing the opportunity for the short-term imperfections around the markets. At the same time, many would shy away for adopting the short-term investment plans given the current volatile predicaments, further augmented by the election scenario.

The diversification amidst such time, incorporating the defensive stocks might gain momentum, typically bolstered by the uncertainty. However, the stance for international diversification may yet not be on the platter as the COVID-19 crisis continues to derail the global economic growth, while the US-China tensions affecting international trade scenario and many organisation’s strategies.

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The Past Elections and the Momentum

The election this time is nothing going to be similar compared to the previously held elections in NZ history. The pandemic to a certain extent has shrouded the wave of the political battle, with the people’s focus continually wavering between the nation’s economic status, their income scenario, and the political manifestos of the different parties.

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As per index price data from S&P Dow Jones indices, Kalkine media taking the start price and end price of the Indices of the election month, a look into the past three elections indicates the meagre impact of the polls on the stock market returns. The stock market during the election month in 2011 and 2014 elections dipped slightly, while there was a meagre positive movement in 2017 elections.

Source: S&P Dow Jones Indices

However, with the community infection resurfacing and rise in the underutilisation rate signals a worrying scenario, that could impact an investor’s mindset. Furthermore, although the unemployment rate in the June 2020 quarter has fallen to 4% from 4.2% of March 2020 quarter signaling optimism, figures may not incorporate people who currently drop the employment search.

ALSO READ: How a record drop of 37,500 Jobs in New Zealand? | NZ Market Update

Some Trends Stirring the Stock Market

Growth Trajectory of Tech Stocks

Technological disruptions primarily characterised the adaptation endeavours of the world, which utilised innovative tech-based solutions to evade the impediments following the outbreak. The persistent shift towards technology has resulted in the growing popularity of tech stocks. As the election whirlwinds grip NZ landscape, tech stocks continue to advance on the growth track.

As of 19 August 2020, S&P/NZX All Information Technology has given the price-return of 14.09% on the year-to-date basis compared to the 8.04% return generated in one year. Notably, as of 19 August 2020, the manufacturers of frequency control products, Pushpay Holding Ltd (NZX: PPH) saw its stock price rise by 0.12% while Scott Technology (NZX: SCT) stock has appreciated by 0.56%.

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Consumer Staples Performance

The pandemic outbreak like a supernova has commanded intense focus of essential items, stimulating the investor’s interest in the consumer staples stocks. As of 19 August 2020, S&P/NZX All Consumer Staples rose by 25.03% on the year-to-date basis, boosted by the growth in the supermarket’s sales. Despite reopening and absence of cases for over 100 days, the stock index has moved close to an upward boundary. The further announcement of lockdown in Auckland could further encourage the investor’s attention to consumer staples segment.

Diversification Lucrativeness

With elections close by alongside puzzled economic scenario and re-emergence of community infection, the budding volatility may boost the momentum towards diversification. The fusion of multiple sector stocks in the portfolio and the focus on the commodity markets and dividend stocks may together drive the overall momentum. As of 19 August 2020, S&P/NZX 50 High Dividend Index on the QTD basis has generated a return of 2.82%. Mutual funds providing actively managed diversified portfolio can also be a critical element as the investor’s eyes to hedge their risks.