In the wake of Friday’s landslide election result, which saw success for Boris Johnson and the Conservative party by a majority of nearly 80 seats, many clients are keen to know what the outlook for their investments will now look like.
IMMEDIATE MARKET IMPACT
The Conservatives’ overnight election victory has seen one of sterling’s ever biggest rallies, rising by 2.5% against the dollar and over 1% against the euro.
The election result has brought an end to the immediate political uncertainty; consequently the more domestically focused FTSE 250 index has jumped by 3.6%, and the more globally focused FTSE 100 by 1.3%: in particular, utility stocks and house builders, as well as Royal Mail, have surged as the potential threat of nationalisation has lifted, following the Labour party’s defeat.
Domestic UK banks have also benefited from the euphoria, with several household names lodging double-digit gains.
The more certain outlook means that the UK government bond market has also been firm, although hopes of a forthcoming US/China trade deal have taken the edge off of the market.
The new Conservative government is committed to pass the Withdrawal Agreement by the end of January. This will see the UK leave the EU. The focus will then move on to trade negotiations with the EU to agree a new trading framework; the priority for the UK is to ensure that trade in future will be tariff-free and as frictionless as possible.
The Conservative manifesto promised to tackle pension issues targeting tax relief at low and average earners, whilst also addressing some of the pension complexities affecting high-paid workers.
The Conservatives have pledged to hold an urgent review within the first 30 days of winning the election, in order to fix the tapered annual allowance currently affecting doctors’ pensions.
For the financial markets, the result of the election has come as both a shock and a relief. The rise in share prices of domestic businesses this morning was both an expression of relief that the risk of nationalisation and a left-wing Labour government had been avoided and stocks recovering from over-sold levels as the size of the Conservatives majority gives greater certainty.
There may well be an extended period of euphoria as the discount which has applied to UK markets ends and UK stocks recover back in-line with internationally comparable businesses.
However, the reality of Brexit will return soon enough as the pressure again starts to build on the government in respect of the trade negotiations. Whilst Mr Johnson is optimistic about negotiating a free-trade deal with the EU by December 2020, this is far from certain and no other complex international trade negotiations have ever been concluded within such a short timescale. In the absence of a trade deal by end 2020, the ‘cliff edge’ of Brexit still beckons with tariffs and a serious impact on UK economic prospects.
Mr Johnson has earned a great electoral victory, but now he needs to deliver on his promises. It remains to be seen if we will see the Boris as London Mayor, a ‘one-nation’ Conservative, liberal and focused on a soft-Brexit now his majority gives him the freedom to distance himself from the right wing of his party and the European Research Group, or whether the right-wing jingoistic Boris of recent months will prevail.
More important still for markets are global factors – the key driver remains the path of US/China trade talks.
We will provide further updates on markets in the coming weeks to ensure your portfolio is best positioned as we head into a new decade.