And the result is…?13 June 2017
That is the question on many people's lips as they consider the General Election outcomes of last week. I have been able to provide some comment to our trade press as many seek reactions to the outcome of what was a surprising result for all involved....especially Mrs May.
Our initial thoughts are to hold firm with agreed investment strategies. Reactionary changes to such outcomes have sometimes proved to be poor moves and we would normally not advocate such. Past performance is not a guarantee of future performance and fund values can fall as well as rise.
Chapters Financial has for many years operated an Investment Committee and we have considered the issues surrounding the latest in a line of political changes. More detail on the information we provide on this can be found on our Investment House View page on our website here:
Our external partner, Cormorant Capital Strategies, has made comment on the outcome of the General Election results here:
It makes you proud doesn't it? I'd go as far as saying that British uncertainty is the best uncertainty in the world.
Last week, I speculated that anything less than a 50-seat majority would represent a failed gamble. That's where I thought the fault line lay. And so, if I wasn't already so bearish on the pound (1), I'd be feeling a little exposed today. In the event, moments after the exit poll was revealed, the pound lost 2.0 percent on the dollar. As luck would have it, I take being right for the wrong reasons as winning all the same.
Thinking about it, perhaps we shouldn't have been hugely surprised as the results came in. For a start, the polls – taken in the aggregate – had signalled an unambiguous and material reduction in the Conservatives lead over Labour. It was plain to see that the Conservatives were running an awful campaign and, if I recall correctly, the bookies had priced in a 15 percent probability of a hung parliament; that's not too far off the odds of getting any one particular number on the roll of a dice.
Now, ask me what investors ought to do about surprising news and, 9 times out of 10, I will tell you that they ought to do nothing. That 'nothing' is conditional, of course. It assumes that investors begin with a reasonably diversified portfolio. That being so, I have little sympathy for those that fuss about 'uncertainty'(2). This time is no different. Actually, I expect prices in the bond market to barely budge and movements in the equity market to be consistent with a pattern of normal trading. That was certainly true on Friday. In any case, bad news for the pound is good news for the FTSE 100 (and vice versa).
Nevertheless, while it is probably true to say that the range of possible Brexit outcomes is broader today, there never existed a clear path to exit. I really don't know if the political fallout means a disorderly exit is more likely. I still don't know if we will see a lengthy transitional arrangement, a Brexit which is hard, soft, open or closed. I don't know if we will see a deal or no deal.
Mind you, the election did provide some clarity. Given results for the Liberal Democrats and Scottish Nationals, a second referendum on Brexit is a dead duck and it looks like IndyRef2 has quacked its last quack as well.
(1) Meaning that, all things being equal, I have a preference for overseas assets and an unhedged foreign exchange position. (2) But what about all of that 'markets hate uncertainty' stuff, you say. Well, things are always uncertain aren't they? Markets owe their very existence to uncertainty don't they? And, without wishing to sound too harsh, if investors can't stand the heat of the kitchen they really ought not to be in there.
Stephen Williams, Director, Cormorant Capital Strategies
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We hope that the outcome of the significant and current negotiations in Westminster, and subsequently Brussels, runs smoothly...but politics was never that simple!
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Keith Churchouse FPFS
CFP Chartered FCSI
Chartered Financial Planner
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