Caroline Ritchie: What if there's election upset

The  pine pollen hangs in fools thin air, and it is a contemplative spring.

The desk-bound dream of sunny days and idly think about politics. Mere moments now until a general election, it is a polling day that has fallen on hard times. As the triennial media frazzle reaches a peak and local mega-phone touting MP's interrupt our dinners, we decide our choices.

Capital markets like nothing better than certainty but they rarely get the privilege. A strong undercurrent of expectation is leading into this election, and to some extent it has kept our sharemarket steady where others have faltered. The NXZ has been a good place to park up, sit down and take a breather in during this campaign period. Mainly because the polls have consistently pointed to one particular outcome.

But what about a surprise result? Markets tend to over-compensate, in both directions. It's an example of modern Expectancy Syndrome. Little darlings who want iPads but get colouring books tend to exhibit the tantrums and tears usually reserved for adults enduring mental breakdowns.

Likewise, investors crush stock prices mercilessly when they don't get the announcements they yearned for. But give a kid a pony for Christmas or the investor a profit report that triples the bottom line and you'll see joy beyond all rational measure. This is definitely not to suggest that shareholders are child-like, but merely that we are all only human after all.

The markets, so often pictured as giant industrial machines in which one gets caught in once or twice a lifetime, are actually also a product of human emotions. Both ways, good or bad, big reactions are temporary acts of brain-overload spurred on by events that deviated from our desires.

Everything occurs in a context. During the fun times share prices can spike incredibly on good or even average news, and during doubtful periods the punishment is usually a lot worse than the crime. The answer as to what effect the election may have on your local investments is just a deduction of the above reasoning.

Given we are in what could be called pseudo dire straits in terms of global economics, an unpredictable political result will probably have negative effects on your portfolio. In better days, with a pumping economy and the winds of fuller employment and bounteous GDP at our backs, election results had almost no effect on the NZX.

During the financial golden years, the bedfellows of business and politics tended to play nicely together. As things get tougher, the sabre-rattling has become louder and the divisions between corporate and political New Zealand become more defined. However, should the expected result come to pass on November 26, we would probably see a continuation of the steady status quo.

For now though, as we finalise our thoughts and sharpen our voting pencils, it is time to enjoy the change of season and the anticipation of good investment things to come.

Caroline Ritchie is an authorised financial adviser with Forsyth Barr in Napier. She can be contacted on 0800 367 227 or caroline.ritchie@forsythbarr.co.nz. This column is general in nature and should not be regarded as personalised investment advice. Disclosure statements are available on request, free.