Following the announcement for a ‘snap-election’ on the 8th June, there has been speculative activity among traders with sharp moves in the value of the pound and UK companies.
What Happened and Why?
- Theresa May is said to want greater power and leverage in the Brexit negotiations which she expects to be gained from a greater conservative majority in the house of commons.
- We are only just beginning to comprehend Theresa May as a new leader. Her approval rating has been gradually increasing whilst that of Jeremy Corbyn has been declining.
- However, some believe the snap election may demonstrate the difficulties ahead of the Brexit negotiations with the EU.
- The reality is that there will be a problematic nature to the split with the EU and as investors we face a wide range of outcomes regardless of the election outcome.
Long Term Impact on Markets
- Investors are naturally worried about the impact of the UK election on their invested assets.
- With asset prices rising the outlook for investors has worsened relative to their long term ‘fair value’.
- The opportunity to invest into a high-quality market at a lower cost, may be provided by the impact of sterling on near term profits of businesses. Sterling has been weak as it has borne the brunt of Brexit fears.
- This has boosted share prices in a market dominated by global companies who earn significant profits in other currencies and these currency-driven-changes in share prices can create excellent opportunities for investors.
- UK Government bonds which traditionally can be unattractive in respect of the returns against inflation, are sensitive to political risk and therefore these may improve as the election nears.
Opportunity Amid Chaos
- Political change has an impact on investment markets in the short term, but rarely has a sustainable impact over the longer term and therefore the situation we describe above could create opportunities for long term investors.
- However, the UK election can create dangers for investors. For example, the temptation to react too quickly or with too much confidence in the outcome of a particular event. This lesson is reinforced by the market movements following the US presidential election in 2016.
Our Approach
- We believe investors should remain focused on the medium to long term, shutting out market noise associated with the above events.
- Secondly, through our research at Loughtons, supported by the research expertise of Morningstar, we are able to focus on the intrinsic value of a particular asset. For example, analysing assets that are priced cheaply enough to provide attractive rewards for risk.
- However, markets will continue to be volatile and therefore active management remains important. As previously stated, equities aren’t the only asset to consider for long term investment and generally volatility can be partially mitigated by diversifying investments across a broad range of asset classes that include equities, commercial property, fixed interest securities (bonds) and cash to spread risk even further.
- We are convinced that for medium to long term investors ‘patience will be rewarded’. We continue to assess the quality of any investment opportunities which come about as the result of our investment process and strict fund selection criteria. A long-term outlook when investing is clearly desirable, as short-term expectations can turn out to be unrealistic where events cannot be anticipated.
- We will always look to ensure that our clients have a portfolio that reflects their requirements (attitude to risk and timeframe for investment) whilst considering what the impact the current stage in the economic recovery has on their exposure to various assets.
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]
Important Information
The views and opinions contained herein are those of Loughtons Independent Financial Advisers and may not necessarily represent views expressed or reflected in other economic communications, strategies or funds.
This article is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Loughtons Independent Financial Advisers does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Loughtons Independent Financial Advisers has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system.
Loughtons Independent Financial Advisers is a trading name of JPRS (South West) Limited. JPRS (South West) Limited is authorised and regulated by the Financial Conduct Authority.