What the election means for your investments, December 2019

Following the election last week, we’ve collated a number of comments, from various fund managers, as to what the result means for our investments.

Property market

Alan Collett, manager, TM home investor fund

“After years of “wait and see” for the UK housing market and the private rented sector, the result of the General Election removes some of the uncertainty for house buyers and sellers. We expect transaction volumes to pick up and bring new impetus to the UK housing market.

“Whilst it will take years until a new relationship with the EU is formalised in detail, the fundamental binary question around Brexit has been answered. Furthermore, a No-Deal Brexit appears unlikely and, as such, the Bank of England governor’s widely and often mis-quoted stress test from September 2018 - which assumes a recession and housing crash scenario - is something we can move on from.

“We expect rental value growth to continue as a result of high employment and continued wage inflation, while the long term fundamentals for the UK private rented sector remain unchanged. There is a chronic undersupply of good quality homes, a need to improve environmental standards as well as the experience for tenants.”

European equities

Niall Gallagher, manager, GAM Star Continental European Equity

“The UK election result is extremely positive for European equities and within that, stocks exposed to the UK economy and European cyclicals (autos, construction, building materials).

“European equities and UK equities have seen very substantial outflows over the last 18 months – indeed European equities have seen more outflows as a percentage of the starting base than any other asset class in any other region. This has been down to a pervasive fear of politics and uncertainty driven by Brexit (first) and more recently by the threat of Labour winning the UK election on a hard-left, anti-business platform.

“These twin fears have discouraged asset allocators everywhere from investing across Europe (including the UK) with allocations low to both asset classes and both asset classes feeling almost friendless at times. Businesses have also been reluctant to invest in the UK and UK economic growth has been lower than it would otherwise have been; this has had knock-on effects into European business confidence too and economic growth over the past year or so, in addition to China / USA trade concerns.

“We now expect business confidence in the UK to bounce back with knock-on effects into Europe. This will be good for economic growth and the earnings of more cyclical companies. Given the size of the electoral majority PM Johnson will have strong latitude to strike his own negotiating position with respect to the European Union (EU) without being held hostage to Northern Ireland politicians (DUP) or the more strident Brexit supporting members in his own party. The EU for its part will welcome a far more coherent and cohesive counterpart in the negotiations.

“We expect risk assets across Europe to be well bid and inflows to resume pushing up European equity markets further with a bias towards more cyclical stocks and plenty of domestic UK exposure. It is important not to underestimate how low allocations are to many UK / European risk assets so these impacts may well be large and persist for some time.”


Mark Holman, CEO, TwentyFour Asset Management

“The UK economy has been paralysed by uncertainty for nearly four years, so perhaps unsurprisingly the initial reaction has been a very strong rally in sterling and a rise in Gilt yields.

“From here, the easy part of Brexit can be achieved by putting Boris Johnson’s Withdrawal Agreement through parliament, paving the way for the UK to leave the European Union by the end of January and move into the transition phase. The next challenge will be the agreement of a trade deal with Europe and simultaneously with the US. The strong mandate given to the Conservatives will make this easier, but it is likely to take all of 2020 if not longer to achieve.

“From a markets perspective, in the short term a more stable currency will encourage investors back into sterling assets. This won’t help the Gilt market, however, and we expect to see 10-year yields starting a move back towards 1%. However, we are not expecting any reaction from the Bank of England at its monetary policy meeting on December 19, as it will be firmly in wait-and-see mode.

“High quality investment grade corporates did not really have much of a Brexit premium built in, but smaller, more domestic-focused companies certainly do and these should benefit most, along with UK banks, particularly their sterling denominated debt lower down the capital spectrum.

“All round, pretty good news for credit investors today, especially those in sterling. However, while markets are likely to experience a squeeze in the run-up to year-end, we expect the bankers to be exceptionally busy and investors should also be preparing for a fresh wave of sterling supply in January, led by financials, who as frequent issuers can typically prepare their deals very quickly.”

UK equities

Darius McDermott, investment adviser to the VT Chelsea Managed funds

“A majority government is exactly the result Boris Johnson was hoping for. He will now have more freedom to negotiate with the European Union, and a softer Brexit could be on the cards – but at least finally in sight.

“The UK stock market is likely to rally now, as will the pound, as confidence returns. Domestic-facing businesses and smaller companies in particular should do well.

“In contrast, the larger overseas earners in the FTSE 100 may suffer a little due to the currency reversal. However, this may be mitigated in time by overseas investors returning to our shores and once again investing more broadly in the UK stock market.

“There is a lot still to be done in terms of the final trade deal, but we at least now have a clearer path, and a sense of purpose, so British companies can operate with less of a cloud hanging over their futures.”

Simon Brazier, manager, Investec UK Alpha

“We expect an initial bounce, as the market reacts positively to greater political certainty, particularly with regards to Brexit. Sterling is likely to appreciate further amid this initial optimism, benefiting smaller more domestically-focused companies relative to their larger more globally diversified peers.

“The market had already started to price in a Conservative majority, which may limit the size of any short-term gains, and in reality ‘getting Brexit done’ only applies to the Withdrawal Agreement. Far greater uncertainty still exists around a trade agreement, where the risk of ‘no deal’ remains, particularly given Boris Johnson’s stated aim of a deal by the end of 2020 or leaving without one.

“We believe business investment is likely to remain weak amid this ongoing uncertainty. With consumption growth constrained by a record-low savings ratio, the UK economy is still vulnerable in the longer term.”

Richard Buxton, manager, Merian UK Alpha

“For all the rough and tumble of the campaign, from an investor’s perspective, the clear majority for the Conservative Party is a welcome result: it means that Prime Minister Boris Johnson will no longer be beholden to the more extreme Eurosceptic elements in his party.

“The sheer scale of his working majority will mean that the Prime Minister should, ultimately, be in a position to allow the transitional timetable for the UK’s departure from the EU to slip over the course of 2020, greatly reducing the risk of a “cliff-edge” departure from the EU in a little over 12 months from now.

“This, in its own right, is a significant development, given a widespread acceptance among informed commentators that the likelihood of settling trade negotiations in a period of less than a year is extremely small.

“I expect to see business confidence respond positively to this new set of political realities, which in turn should be genuinely positive for the UK economy.

“I expect consumer confidence – remarkably resilient in recent years notwithstanding all the uncertainty – to strengthen significantly.

“The initial reaction of the pound to the result has been a little more muted than might have been expected. That being said, I would not be surprised to see sterling strengthen further from here. Sterling’s new-found resilience should help suppress UK inflation, and therefore boost real-terms wage growth over the year ahead, further bolstering consumers.

“The disappearance of the perceived risk of a Corbyn-led government will be seen as an overwhelming positive by international investors, for whom the UK market may now regain its previous appeal.”

David Clark, manager, TB Saracen UK Alpha fund

“Sterling has predictably rallied and there will likely be some positive moves in a number of UK stocks given that a large portion of potential risk has now been nullified. UK exporters should benefit and the utilities sector may well experience a relief bounce as the threat of state appropriation of stocks recedes. Larger, liquid stocks may also have a good day as the notion of employee trusts (which had very little to do with actual employees) is consigned to the bin.

“Other sectors that should benefit are the likes of Financials and Housebuilders, as will sectors that can capitalise on Mr Johnson’s spending splurge. Healthcare companies that have strong links with the NHS will experience relief with the removal of the risk posed by Labour to collaboration with private companies.

“It is very difficult to say how the next round of Brexit negotiations will affect individual stocks. Whatever the terms of trade end up being the only certainty is that those companies who habitually import and export goods will see an increase in bureaucracy and almost certainly longer lead times for the movement of goods. Companies will have to adapt and we will be factoring this into our investment considerations.”

Published on 17/12/2019