Catching Australia just got easier, says fund manager

Australian tax policy just made it easier for New Zealand to catch the "lucky country", says Harbour Asset Management managing director, Andrew Bascand.

In a note to clients this week, the respected fund manager says the sudden shift in Australian policy makes "many investment opportunities in New Zealand look promising relative to those in Australia" and recommends going under-weight in Australian mining and bank stocks as a consequence.

"In our opinion, the key strategy for the coming months is to increase US and New Zealand exposures", especially as the New Zealand economy shows signs of a rebound based on "good growth" from exports and increased investment.

The May 20 Budget "is likely to reinforce this rebalancing through a rise in GST, discouraging over-investment in housing, and potentially through encouraging companies to invest productively in both capital and labour."

Describing the 40 per cent super-tax on Australian resource company profits as "ill-conceived", Bascand says: "It is ironic that a developed country with the strongest fiscal position and economic outlook (Norway aside) has stepped into a very market unfriendly policy world."

The Henry review tax proposals threaten to "turn Australia from a two-speed economy to a low speed economy."

"The significant socialist lurch in fiscal policy to forcing Australians to over-save for their retirement and discouraging global investment in the one sector which drives domestic growth seems destined to lift the risk premium on Australian investments" Bascand argues.

On top of that, signs of a slowdown in the Chinese economy mean that, at least in the short term, "as we see it, the resources trade is crowded."

Bascand predicts that Australian banks will be next in line for "regulatory tinkering", suggesting that there would be popular politics in taxing banks more heavily as the opinion polls close up ahead of the Australian federal election later this year.

In New Zealand, Bascand warns that there will be a transitional period for investors as monetary starts tightening later in the year.

"Emphasising quality, exporters and particularly the healthcare and technology sectors could be a successful strategy."