NZ financial markets seen taking election result in their stride

Financial markets are likely to take Saturday's election result in their stride when trading resumes on Monday, but immigration is set to become a key issue for business as the parties start negotiations to form the next government, market analysts said.

The New Zealand dollar is not expected to be affected by the result, as the New Zealand's mixed member proportional political system is well understood overseas.

Specifically, analysts said there could be some reaction in the retirement sector companies, such as Ryman, Summerset and Metlifecare.

All three have weakened in the run-up to the election based on softness in the real estate sector, which in turn has been put down in part to uncertainty surrounding Labour's tax plans.

At the margin, a National-New Zealand First coalition is seen as being the most likely outcome, but a tie-up between Labour, NZ First and the Greens is also seen as being possible.

As expected, Winston Peters' NZ First Party has emerged as "kingmaker" with nine seats, compared with 58 for the incumbent National Party, 45 for Labour and seven for the Greens. The Greens have ruled out a tie-up with National.

The Bill English-led National Party's policy on immigration is based on the status quo while NZ First has been a strident critic of current policy settings.

NZ First wants only skilled migrants to be allowed into the country, and to reduce numbers to 10,000 a year.

The latest data from Statistics NZ showed annual net migration was 72,100 in the August 2017 year compared with 69,100 in the August 2016 year.

Migrant arrivals reached 132,200, a new annual record, and migrant departures were 60,100 in the year ended August 2017.

NZ First has also been a strident critic of the of Reserve Bank Act, which focuses the central bank's mandate to keeping annual inflation with a 1 to 3 per cent range, and which has been a cornerstone of the New Zealand financial market since its introduction in 1989.

In a speech made in July, Peters said the act, with its focus on inflation, was handicapping the economy.

"NZ First has prepared legislation to bring the Reserve Bank Act up to date. Specifically, the Bank's outdated focus on inflation must be ditched," he said then.

Despite the uncertainty, analysts did not expect to see a big market reaction when markets open on Monday.

"In terms of the financial market's reaction, I think that it will be fairly muted," Mark Lister, head of private wealth research at Craigs Investment Partners, said.

"There will be a little bit of caution as people wait to see the way negotiations play out, but I would not expect to see any significant move," Lister said.

Unlike this year's US election and last year's Brexit vote in the UK, the local election was not as "polarising", Lister said.

"The differences between National and Labour are very much at the fringes," he said.

"I think it (negotiations) will be close, but I think that National probably has the edge in those negotiations because they attracted such a strong vote," Lister said.

"It puts them in the box seat, but Labour, NZ First and the Greens could get there," he said.

Despite Peters' stance on the Reserve Bank, Lister said there was "zero" chance of significant changes being made to act by either a National or Labour-led government.

Analysts said immigration policy could prove to be important, especially since migrants have been used extensively in the agriculture and hospitality industries.

Shane Solly, portfolio manager and research analyst at Harbour Asset Management, said he expected trade in the share market to be "cautious" before the October 12 deadline for the formation of a new government.

"Given NZ First's position, its migration policies may have an impact on some companies if they become part of the negotiating process," he said.

"Investors may need to be patient but a National-led government is likely to see be seen as a steady backdrop for the New Zealand equities," Solly said.