It appears Britain doesn’t like snap elections. Other countries around the world seem to manage them fine but only the second in living memory has again ended with the government of the day being dumped on its behind. Perhaps that is because the UK polling rules and timeframe mean that such an election is more “gently fold” than “snap”. Or maybe there is something in the British psyche that sees politicians asking for more only 2 years into its term like the child who got the shiny new bike they wanted for Christmas but then returned at Easter demanding the addition of bigger wheels and an engine. And the electorate has treated the request with similar disdain.
However, this isn’t really true. Compared with 2015, the Conservatives appear to have grown their share of a larger electorate on a larger turnout. They have taken a significant chunk of the UKIP vote and that of the SNP in Scotland. The problem for them, of course, is that Labour has taken more. As a result the Tories will fail to gain an overall majority of seats at Westminster. Even if you assume the DUP will join them then, at best, they will only just get there. Political cartoonists will no doubt relish the prospect of the Tories going cap in hand to Plaid Cymru or The Greens for support.
The prospect of a parliament that is even more hung than that of 2010 will do little for certainty, stability or the UK’s negotiating position as Brexit talks start in 10 days time, and the EU will take full advantage of that. In which case a ‘good deal’ is unlikely and a second Brexit referendum (now surely a real possibility) may well not succeed. People talk about a ‘soft Brexit’ but so much of what we’ve heard from the EU indicates that a “half-way house” is difficult to achieve.
It’s no surprise therefore to see sterling weaker this morning. The FTSE 100 is up because most of the earnings are outside the UK and are flattered by a weak home currency. The FTSE 250 is down because most of the earnings are in the UK and they will be more difficult to repeat next year when non-sterling input costs are suddenly higher. In the UK we now face a political situation where history provides us with no instruction and makes predictions somewhat foolhardy. That very statement does, however, make domestic UK assets look less attractive for the medium term. The best companies in the world are strong enough to see off political uncertainty and are in the main, listed outside the UK. It is at times like this that we are happiest owning a truly global portfolio of the strongest, most durable and attractively valued business franchises possible. We have long believed in this approach because it is highly resilient in the face of domestic political risk: it has served our clients particularly well in a 12 month period that has seen Brexit, Trump and now unfortunately a truly hung parliament.
The views and opinions expressed are the views of Waverton Investment Management Limited and are subject to change based on market and other conditions. The information provided does not constitute investment advice and it should not be relied on as such. All material(s) have been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.
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