It is now clear that our Prime Minister underestimated the strength of populist sentiment and we are now in a position where no party has managed to achieve a parliamentary majority. The opinion polls prior to last Thursday’s vote pointed to a Conservative win although not the landslide that was expected just a few weeks ago, so what does this mean for the UK and more importantly to investment markets?
The result (if that is not a contradiction) is that the Conservative party will be relying on the Democratic Unionist Party to provide them with the majority and this will inevitably create some short-term volatility in equities, bonds and particularly currency markets as this will knock confidence in the UK. Without an overall majority Theresa May will not have the strong mandate for running the country that she desired or for that matter when she starts her Brexit negotiations scheduled for 19th June. The prospect of another general election would be a risk to the Conservatives at this time and furthermore if they could hold on until October 2018; when constituency boundary changes take effect, these are estimated to bolster the Tory presence by a net 25 to 30 seats. No doubt we will all watch this develop over the next few months with interest.
It comes as no surprise that markets hate uncertainty, and from that perspective this is one of the worst possible results at a time when the political process of Brexit demands firm direction, and as we have seen Sterling has already been hit. It is likely that continued uncertainty will put a lid on the UK equity market however over the last few years markets have been extremely resilient to the plethora of shocks that they have had to cope with, from terrorism to the Brexit vote and the US presidential election result to name just a few.
It is also worth considering that the likelihood of a Conservative-led coalition, will see extra public expenditure commitments increased and this could prove to be popular with some disenchanted voters.
So what are we doing as advisers and what should we all do as investors? Once again we need to take stock and to consider our ‘medium to long term’ objectives before rushing into any ‘short-term’ conclusions. Our investment decisions have been built on a medium to long term diversified and structured process, and as such whilst over the last 6 to 12 months we have been selectively taking profits from our clients’ portfolios where appropriate, we do not consider now is the time to make rash assumptions. Watch this space……
For clarification of any points discussed above and any future independent advice regarding your own financial planning, please do contact us on 01626 833225 or email [email protected]
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