18/04/2017
We continue to live in interesting times!
The political landscape in the UK may be about to change again – assuming the vote in the House of Commons goes the PM’s way, the UK will be having a General Election in June with the stated aim of providing clearer support for the administration’s task negotiating the UK’s exit from the EU.
In the short term, we’re likely to see a bit more volatility in stock-markets as a result of this announcement, but nothing too exciting, interest rates and exchange rates haven’t altered significantly (in spite of short-period bounces) so no particular concern for investors over the next month or so. If the proposal to hold an election isn’t passed by the House of Commons (two thirds majority required) we will see some brief excitement, but otherwise the real fun will be in the run-up to and the period after the election. Investment markets don’t like uncertainty so, in theory, a stronger mandate for the PM and her Brexit team should be a good thing, but I struggle to see how this can be achieved by holding an election. Presumably the Labour Party will lose some seats if the leader is as unpopular with Labour voters as the media would have us believe, and if this is something that will affect voting intentions - the recent by-election loss in Copeland did seem to be heavily influenced by local issues concerning the Labour Party’s stance on the Nuclear Industry (the key economic activity in the area). But the Labour party don’t offer that much opposition to the Government on Brexit negotiations anyway, whereas a potentially re-invigorated Liberal Democrat party might.
It’s worth noting too that the vote to leave the EU was a referendum (where every vote counted) and the incumbent MPs have felt some obligation to respect the will of the nation as a whole. Post a General Election, the MPs can go back to representing themselves (perhaps with a nod to the minority of voters who normally secure their election) and thus feel less obligation to support an exit from the EU regardless of consequences, meaning we could see a reversion to support for maintaining strong links with the EU and a watering down of any exit (if not an abandonment of the whole process with a rescinding of the UK’s notice to leave). Without a General Election this would be more difficult to justify and achieve, and it will be interesting to see whether the Conservative Party run on a strong Brexit platform or not.
Whether this will be a good or a bad thing for the UK, the EU or the individual isn’t my concern here, and in fact I think the result will broadly match the consensus view of the process anyway (quite a bit of faffing about and lots of money spent making partners in consultancy firms richer, but no real changes). From the point of view of investors I think the process should lead to a broadly positive outcome for stock markets in the UK and Europe, perhaps a slightly stronger pound, but not much - the UK has done pretty well out of a weakened currency and no-one in the administration is keen to see that get above the $1.40 level any time soon. With regard to Structured Products in particular, we may see some improvement in terms offered due to any increased volatility around the time of the election, but don’t expect too much (remember, the UK is still just a small island off the coast of Europe). For existing products, no real change expected and investors should remain confident of achieving strong growth or income even if underlying markets disappoint.
For fund investors, the SP Fund provides diversity in issuers, underlyings and pay-off styles and should continue with the strong performance being delivered by Tom McGrath; investors in the 8AM MSP Funds will continue to benefit from the volatility-control mechanisms and both the Focused and the Tactical Growth Fund are well-placed to take advantage of opportunities that present themselves.
All in all, excitement from a political point of view (and it should keep the conversation alive in the pub or around the dinner table) but from an investment point of view, don’t expect too much as a result of this announcement – for real influence on markets the focus remains strongly on the US and China.
Best wishes
Clive Moore
Managing Director IDAD
