Theresa, Theresa, Theresa. What have you done?!
When the results of the exit poll were announced at 10pm last night, I was sitting in a rather grotty hotel room (it looked nice on the Internet when I booked it) in Folkestone.
Several months ago, before Mrs May called the snap election, I booked to attend a behavioural science conference in the English seaside town. I considered cancelling it once the election was called, knowing that I wouldn’t get much sleep the night before and would need to be on hand the following morning to answer queries from clients and the press.
But the poll data suggested a clear outcome; an improved Tory majority, giving Theresa May the ‘strong and stable’ leadership she craved and a mandate to negotiate Britain’s exit from the European Union.
The first signs that all might not go smoothly started to show up a few weeks back, with May’s refusal to engage in public debates and then a ‘dementia tax’ u-turn.
Jeremy Corbyn was getting stronger as the campaign progressed, shrugging off accusations of being a terrorist sympathiser and not even suffering too much damage from the calamitous appearances of his shadow home secretary.
Around a week ago I confidently told my wife that the polls were wrong again and we faced the prospect of a hung parliament.
(For anyone who’s keeping score, that’s three from three in terms of my big political predictions now – I’ve somehow managed to accurately predict the outcome of the EU Referendum, US Presidential Election and now the UK General Election. If I can keep this up, I might start putting money on it!)
Back at my desk after hearing a fascinating series of talks about human behaviour, including one from Vote Leave campaign director Dominic Cummings, I’ve had a little time to digest the outcome, listen to discussions on Radio 4 and LBC, and read the plethora of emails that have arrived from fund managers, all keen to put their own spin on the situation.
First of all – and this by now should go without saying, for our clients and regular readers of our blog, at least – there’s no need to panic.
Market reaction to the election result today looks fairly subdued. Pound Sterling has fallen by nearly 2% against the US Dollar, but remains around 7 cents above its 52 week low.
Currency markets have not responded as harshly as they did last June, when the referendum result was announced. Brexit was already factored in and is going ahead as before, with perhaps slightly less ‘hardness’.
As a result of the falling pound, the FTSE 100 index of leading UK company shares is up, by 0.9% as I write this, at 7,517.17 points.
This places it fairly close to its record high and is expected when the pound falls because much of the revenue from the biggest UK listed companies come from overseas, where a weaker pound translates into higher profits.
Company shares with more of a domestic focus have had a tougher time of the result; house builders and retailers in particular have been hit, with an expectation that a minority Tory government is likely to result in slower economic growth or a recession.
Following news of a hung Parliament, Rathbones’ Ed Smith commented on the prospect of a softer Brexit or less austerity.
“We had already warned that a deteriorating outlook for household consumption expenditure had made revised expectations for UK GDP growth this year difficult to beat. Additional uncertainty reinforces our view. That said, if today’s results can be interpreted as a reduced mandate for ‘hard’ Brexit, growth in 2018 may be better than expected. Further, if today’s result can be interpreted as a vote against austerity – or at least the current level of austerity – a change of policy would also improve prospects in 2018.”
Rob Williams, Head of Distribution at Royal London Asset Management, said that higher political risks were at the top of client concerns this year:
“While the announcement of the UK general election and the results of the French election were rare cases of politics stabilising markets, politics and policy look set to maintain their impact on markets during the coming months.”
Azad Zangana, Senior European Economist, Schroders, warned of political uncertainty for the economy:
“For the economy, households and corporates will be concerned by the increased political uncertainty. However, at the same time, the paralysis in Westminster will mean fewer changes to fiscal and economic policy. Despite this, we expect a pull back in household spending and business investment which will exacerbate the slowdown currently being experienced.”
Nobody has a crystal ball and nobody can accurately guess the impact this election result will have on the different investment asset classes.
A period of increased uncertainty and volatility looks likely, although other geopolitical risks are abound and these coincide with high market valuations (by historic standards) and a long overdue market correction.
For investors, the best advice following this election is to remain focused on long-term financial planning objectives, ensure there is sufficient diversification within your portfolio, and do your best to avoid the noise/speculation that always accompanies major political events.
