The Consensus View
by Alexander Beard, on Jun 9, 2017 9:26:23 AM
With the hung parliament following the UK election result - it turns out that there isn’t a consensus view! But perhaps what the UK now has is a parliament that better reflects more of the views of the UK people, a generally well diversified bunch. So what does this mean for investment markets? When you take a much wider view, considering the global picture, the answer is likely to be ‘not much’.
Electoral fortunes can influence markets of course. There is normally a recognisable cycle of tax give-aways before elections, which can boost markets, followed by a period of tightening soon after. But we haven’t seen it this time around, largely due to the snap election but also due to the shortage of funds to give away. In the US we saw how markets initially reacted very positively in the hope that Trump would press on with reducing red tape to free up business activity across the US, but we are unlikely to see the same here in the UK since there are no such policies being proposed.
Sterling weakened following the referendum result, and we may see a bit more of a slide as the Brexit negotiations begin with a few substitutes taking the field for the UK team. But this is not surprising and is simply an extension of a recent trend. In some respects this is good news for the FTSE 100 with so much revenue from overseas being reported in Sterling. It is also good news for investors with large portions of assets in overseas markets.
Globally, this is not a world shaking event. The EU is continuing towards reducing unemployment, increasing GDP, and slowly, slowly turning out a recovery. The US has surged along well, and Asia is also seeing strong returns. Meanwhile Emerging Markets have also shown an uptick – albeit with some questions over the sustainability. Many of these global markets are unlikely to feel a bump as they press on impervious to UK politics. And even in Europe we may see that business and economics outweigh the political scene when it comes to influencing stock markets.
Bond markets might be a slightly different matter, but the key driver here is not political events, it is interest rate movements. It is possible that the UK economy will not sustain recent growth trends, and if so the pressure to push interest rates up could ease a little. There will still be some upwards pressure, and the US is still most likely to raise rates the highest in the main developed markets. As rates rise we would normally see bond values drop. Not all bonds are the same though, and some will not feel the pinch as much as others. This has been the story over the last 2-3 years and it is unlikely to change significantly as a result of the UK election.
So in many respects, with regard to investments, it is very much ‘business as usual’, think globally and maintain diversification to manage risk. Much the same as usual then…..
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