PM’s resignation caps a year of political surprises

John Key’s resignation from New Zealand’s top post after eight years as Prime Minister is the latest shock in a year of political surprises, from Donald Trump’s election to the White House to Britain’s withdrawal from the European Union.

And like most political shocks there will be some impact on financial markets.

But Key has timed his announcement well to minimize political disruption; support for the reigning National Party is as strong as it’s ever been (49.5% as polled in the latest Roy Morgan survey) and there is plenty of time for the party to elect and show support for a new leader before elections in 2017.

Here is what we think it will mean for investment markets

• There is likely to be a brief period of uncertainty and market volatility in New Zealand –  so far the market response has been muted, with the New Zealand share market and New Zealand dollar falling slightly – but Key’s resignation is unlikely to have a significant or lasting impact on markets.
• As the aftermath of Brexit and the US presidential election has shown, even dramatic short-term responses to political events can be quickly reversed.
• Economic fundamentals are a more important driver of market returns in the medium to long-term and those fundamentals have not changed.

Mercer offers some of the most diversified funds in the New Zealand market, so as a Mercer customer your funds are not concentrated in any individual stock, country or market.

Investors should seek financial advice before making decisions based on political events or predictions on how the market might respond. Unless your personal circumstances have changed don’t make any rushed decisions.

John Key will resign as Prime Minister of New Zealand and leader of the National Party on Monday 12 December. Key has thrown his support behind Finance Minister Bill English.