By Neil Worsley, Investment Strategist
With many of the election results now in, the Conservative Party are the clear winners on the national scene. The size of the majority will clearly have a bearing on Boris Johnson’s ability to push through policies, of almost whatever nature, without opposition. While there are a sizable number of political implications emanating from this result, for all the parties, we can look at what the take is for the financial markets.
Brexit, of course, is probably the main short term concern of UK markets and this result should lift some of the uncertainty surrounding the Withdrawal Agreement which, while the deadline of 31st January may not be met, should go through over coming months. I would also say that this convincing Conservative victory is also likely to mean that a no deal scenario will not happen as the Prime Minister is not at the mercy of minorities in his party and has already been signaling an intention to move more to the political centre-ground. We are already seeing a strong rise in Sterling to around 1.35 Vs the dollar and while we could see this going a little higher, I cannot see this rising much more for the time being and would see it stabilizing around here.
The UK equity market should also see some improvement over coming weeks, all other global events notwithstanding, as the more certain outlook gives more optimism and as investors look forward to an improvement in capital investment and consumer confidence. However, equities could see a performance split between international stocks where share prices may be held back by a stronger sterling and the more domestic orientated and smaller companies which will benefit much more from the confidence this result gives.
Obviously, Utilities will be the biggest sector beneficiaries from the election outcome and sectors such as financials and housebuilders will also be among the winners but the overall FTSE 100 may have a more muted performance with the push and pull of what is occurring below the surface. However, there is still a large value gap between the UK equity market and most other developed world markets and while this election result does not solve all the uncertainty, it does at least offer some short term relief and we could well see a better relative performance from the UK as it offers more appeal than the possibility of a left wing leaning government. There is also the prospect of renewed takeover activity as it now looks as though we are set for 5 years of a more market friendly government as the size of the majority offers more certainty.
On the fixed income side, with a stronger currency and the reduced likelyhood of issuance, which we could have seen under a Labour government, there is likely to be a sell off in indexed linked bonds as inflationary trends are more subdued, but conventionals may perform somewhat better than this.
Overall, the financial markets will be happy with this outcome and investors will at least not witness the savage financial reaction which other results could have thrown up.
Hedley and Co offer a Discretionary portfolio service based on the strategies mentioned in our monthly commentary. Please contact our office on 01254 699333 or 01772 887 880 to discuss the available options.
For regulatory disclosures, please visit https://www.hedleyandco.co.uk/publicationsandclientdocuments and click on Hedley Regulatory Disclosures.