UK Election Result!!!!

As the exit polls stated with great accuracy last night the UK electorate turned out and said what we were all saying, in that we did not want either of the two leaders on offer as neither party delivered a manifesto that looked at the problems the country faces today and dealt with them with maturity or a forward-looking focus. I am though not surprised at all with the result because when I spoke to many of my peers in recent weeks, we all said the same in that neither party and neither manifesto did in any way represent how most of the population felt. We are now left with a Prime Minister that has no overall majority and will need a coalition or agreement with the DUP to get a Queen’s speech through on June 19th. No one is really expecting her to resign today despite the speculation, as that will create further chaos. She is though seen politically as toxic as regards to being a leader long term and she is not viewed as someone that will want to be leading the conservatives into another election.

What next, when she goes and who takes over is somewhat finger in the air and she is truly at the behest of the party, but she ran an awful campaign, has a divisive manifesto and is not seen as an inclusive leader. Not a good set of attributes to be a long-term leader of any party.

Market & Currency Reaction

When it comes to looking at the UK economy and indices, we must look at it in the short term as in next few days and then over the coming months. Today we are seeing sterling fall by circa 2% against all major currencies and that will benefit the FTSE 100. Behind the FTSE 100 and looking at the FTSE 250 we are seeing it fall by circa 1% as the negative political environment and uncertainty, plus we have also had weak data sets again this morning, will push the mid and small caps lower. The movement in the mid and small caps was telegraphed in that it had hit all-time highs recently and data started to fall off, so the fall in these indices is in part expected. Sterling falling is always expected but many of the reasons why Sterling falls is uncertainty over Brexit. If the view going forward is that we may even have another referendum, we could see sterling strengthen significantly and if that happened the FTSE 100 would fall significantly as it is inversely correlated to Sterling. This is because of the level of overseas revenue generated in those companies and so if sterling falls, FTSE 100 rises, if sterling rises FTSE 100 falls.

The rest of the world is ignoring what is happening here on the basis that the UK and our problems are an irrelevance when it comes to the global economy, so all in all, the issues we face today will have no impact on the markets or portfolios as we took defensive actions and locked in profits. Am I worried about the hung parliament then? No, I like what has happened, as it means that neither party, with what are both poor manifestos, can bully the electorate and make the country more divided. It will not help economically but the result reflects the frustration, anger and disappointment felt by many of the electorate as regards to the stance of both our leading parties. As always, the reality of what we should be offering the electorate is somewhere between the two, but for a long as the Liberal Democrats are in the wilderness and neither party has a “centrist leader” like Tony Blair nothing will change.

Our Predictions (or more like what I would like to happen)

  1. Theresa May will not resign today but will within six months, and I have no idea who would take over but it needs to be someone fresh and untarnished;
  2. Sterling will fall today but within a couple of weeks will start to rise again as rumours of another referendum take hold;
  3. The Tories will find an alignment with the DUP and the Liberal Democrats that will mean a new referendum at the end of the negotiations and a repeal of Tuition fees;
  4. We will still leave the EU but it will be a far softer Brexit than Theresa May was advocating;
  5. Taxation will rise to fund the change in tuition fees and it will be on those earning more than £150k per annum;
  6. We will start investing in Infrastructure but fund it through issuance of long term national debt not PFI;

Overall the reason why I like what is happening is that it forces a real debate between the people that can make the changes being the politicians, and a coalition to me is always a good thing if you do not have a centrist government stance. That is only good if the outcome is the delivery of a centrist position and the parties evolve. If we had another election with the same policies we would get the same reaction. I just therefore hope our politicians listen and understand.

Have a lovely weekend and if you have any questions, please give me or a member of my team a shout.

VBW

Jason