Over the past few weeks, one of the Investment Houses we use, have written that currency markets appear to be anticipating a softer, or perhaps more pragmatic route for Brexit after the General Election. It looks like Mister Market got it right once again.
They go on to say that the result of last night is decisive and produces a government which is capable of making and implementing decisions. This will significantly reduce the levels of uncertainty that UK businesses have faced and those who trade with them abroad, which had subdued activity levels over the past three years and led to a slowing in business investment.
That’s good news for investors, both inside and outside the UK.
UK stocks, across the board, have already risen this morning by 2% in early trade, partly aided by President Trump indicating that a US-China phase-1 trade deal would be signed imminently.
£-Sterling has rallied by about 2% against both the US-$ and the €-Euro. This is also good news, for overseas purchases, in that the buying power of £1 has increased. Holidays, and imports will cost less in Sterling terms. On the other hand, it does mean that the rise of foreign stock markets overnight looks less impressive when translated back to sterling. Still, even in £-Sterling terms they are up. Our return from a UK underweight position in our investment portfolios last year to being invested to target level ensures a positive performance contribution from the election outcome bounce in the UK’s stock market.
The outlook for portfolios also looks more positive this morning. The UK domestic picture now has less risk for investors and business leaders which should help stabilise business revenues and their appetite to resurrect mothballed capital investment projects. That is also helped by the improving global outlook, which took a big leap forward last night with the US and China finally agreeing a trade deal ‘in principle’. This news will have has mostly been buried in the UK by the election news flow but will be extremely important to the large number of UK businesses exporting goods and services. Incidentally, it also explains the bounce in Asian stock markets overnight than the UK’s election outcome.
The Investment House comments above confirm what we, ourselves have always said, that Markets don’t like uncertainty. Whether you agree or disagree with the Election outcome, the Markets know that decisions will be made and can price the outcome accordingly