Investing our way out of lockdown
Today marks my 51st week of working from home. When I left the office with a few files and some...
If Christmas shopping and office parties weren’t already enough to think about, Prime Minister Boris Johnson has managed to shoe-horn in a December General Election for the first time in almost a century, as he bids to get a fresh mandate for Brexit and break the deadlock in Parliament.
The Prime Minister had hoped to have an exit sorted by 31 October. However, like other Brexit deadlines before, it came and went and Johnson – possibly regretting his previous statement that he’d rather be dead in a ditch first – was forced to request a delay until 31 January 2020. The European Union later confirmed the “flextension”.
All roads now lead to Thursday 12 December. It will be the third General Election in the past four years. As Julian Chillingworth from Rathbones pointed out: “Every vote costs the country about £130 million to organise. But there are roughly 52.4 million adults in the UK, so that’s less than £2.50 a pop. Direct democracy for less than the price of a London latte.”
But with markets uncertain and the UK distinctly unloved by investors, could a General Election be a positive or negative inflection point for markets? FundCalibre is here to give you guide on what to expect.
Since 2017, one of the biggest challenges Theresa May (and now Boris Johnson) have faced is that parliament, like the original EU referendum vote, is split on the subject and there is a lack of a political majority in Parliament in favour of any course of action. This has made it almost impossible to make any positive moves on Brexit: however, an election could bring about a change in the number of seats held by each party and a change in the MPs holding those seats.
Very much so. At the time of writing, the polls and the bookmakers both predict a hung parliament – although earlier in the week they were predicting a Conservative majority, so who knows? The levels of uncertainty seen in the last General Election look likely to be repeated on this occasion – this is because the issue of Brexit will likely be as important to voters as traditional party politics, an issue which transcends party political lines.
The Brexit party is a major threat to a Conservative majority. Led by Nigel Farage, it wants Brexit to happen as soon as possible, and without a deal. This version of Brexit could attract enough voters to split the support for Brexit and ultimately allow the Labour party and Liberal Democrats to make gains.
A recent research note from Close Brothers pointed to three likely scenarios*.
Aside from the scenarios outlined above, it remains possible that Labour wins a majority, or the Brexit party or Liberal Democrats win more seats than expected.
The UK stock market is likely to be increasingly volatile based on polling data in the run up to 12 December.
If you are an optimist and believe we will get a majority government and a Brexit deal by 31 January, then you could consider a number of UK centric funds, which are looking to take advantage of the fact UK equities are currently undervalued due to uncertainty.
Those with less confidence may prefer to invest in UK funds with a greater exposure to larger companies, with greater international-based earnings. For example, the Artemis Income fund or the Threadneedle UK Equity Income fund, both of which have reasonable exposure to FTSE 100 companies.
The pessimists, who believe the Brexit uncertainty story still has some way to go, may look to cast the net wider by investing globally in a fund with capital preservation at its heart, such as the JOHCM Global Opportunities fund or Morgan Stanley Global Brands fund, which have 13% and 21%** in the UK respectively. Investors may also choose a multi-asset offering, such as the Jupiter Merlin Growth or the TB Wise Multi-Asset Growth funds.
*Source: Close Brothers Asset Management, Investment Insight, 31 October 2019
**Fund factsheets, 30 September 2019