As events have shown us over the last twelve months, things don’t always turn out quite as expected. This has certainly proved to be the case for Theresa May this morning.
The markets’ reaction this morning (as at 11.45am) has been somewhat muted, significantly less dramatic than following the EU referendum of almost a year ago. The FTSE 100, which represents the larger multinational companies, is up just over 0.5%; most likely a consequence of a fall in Sterling (around 1.5% against the Dollar and the Euro) and the benefit this has on reporting overseas earnings. The price of mid and smaller company shares has correspondingly fallen, a reflection of their greater exposure to the uncertainties of the UK domestic economy and higher import costs.
Like everyone else, we will be watching events unfold with interest over the next few days, but it seems likely that the Conservatives will be able to form a government. Nevertheless, there are many questions arising from this situation – most notably, will this change the nature of Brexit? It is possible that the new government may have to soften the ‘hard Brexit’ stance that the Conservatives had adopted, hence the chance of the UK remaining within the single market could increase.
The immediate impact on the UK economy is not clear. Prior to the election, economic data had indicated a slowdown in consumer spending, but some of this could be a temporary impact as a result of the election itself. The increased uncertainty might also delay business investment, but a weaker Pound might encourage overseas investment as it did in the aftermath of the referendum. Furthermore, the timing of any increase in interest rates is now likely to be extended. While the level of uncertainty might seem greater this morning, we are not convinced that a hung Parliament will, by itself, have a significant negative effect on the UK’s economic performance.
Whatever the outcome, our approach has always and continues to be, to look beyond short term political uncertainties, and instead focus on the key attributes of quality and value. We advise clients to diversify investment exposure and to hold a sensible amount of cash to act as a buffer against market volatility. The outcome of this election and the ensuing political manoeuvring is not enough to change this philosophy.
Despite recent events and the strong returns of the last year, we continue to find sufficiently attractive opportunities that we are happy to hold for the longer term.
Financial Planning Manager
Please note – this piece contains the personal views of Angus Aston on 9th June 2017. It should not be construed as financial or investment advice.