“It may be good to hold some of that cash back Edward. If Corbyn gets in, the markets will crash” said a pretentious, assured gentleman in the row behind me. It was pre-show at the Palladium Theatre, London. Most were either squeezing into their seats, flicking through programmes or crunching popcorn, but these two clearly thought it was a good time to debate the pros and cons of the investment landscape.
“Are you sure Trevor… it’s only two hundred (thousand), I don’t mind taking a bit of risk?” asked Edward. “No, cash looks a good bet right now… it isn’t good to invest heading into an election” Trevor responded. Well that’s squashed the view that people are more politically informed than they were in 2016, I thought. Thankfully for all those sitting close by, the curtain rose and the show started…
To me, it has felt like an election is the natural next step for some time. Parliament has been clearly divided, unable to accept a compromise or any form of Brexit deal to get this saga resolved. At the same time there is no majority (currently) in the house of commons for a second referendum. A referendum by another name then, is where we are now, with an election offering the people the opportunity to appoint a leader with the numbers to more easily govern, plan and hopefully deliver a meaningful outcome.
This is by no means guaranteed though. The December 12th vote will be one of the most fiercely contested in history. It is also extremely unpredictable, given the amount of people who will likely deviate from their normal voting patterns. The polls are showing the Conservative party with an 11% lead over Labour at the time of writing, enough for a decent overall majority you’d think. But then again, the campaign trail can change a lot, and 13% of people polled are yet to make their minds up (Pantheon Economics, October 2019). A lot can happen in six weeks.
Reverting back to Trevor from the theatre, just for clarity, whilst some sectors of the UK economy would struggle in a Corbyn government, there are others than would benefit. This would also be the case in a Johnson government, or in a hung parliament…there will always be winners and losers. In any case, global markets have bigger fish to fry; any Brexit outcome (even no deal) isn’t going to cause global markets to ‘crash’.
More important is what the Brexit outcome might mean for our currency and therefore overseas assets within investment portfolios. If the pound falls in value it boosts them, and if it rises, it drags them. A significant rise in sterling is therefore a material risk to portfolios with a large holding in overseas assets. From experience, it is best to remain balanced in order to perform whatever the outcome, so we have been taking steps accordingly.
We are, therefore, confident that your capital is well protected whatever the election outcome. Just as important though, are the opportunities that may be created. If the current portfolio mix is our first team, we have been working extremely hard to establish a diverse bench of options, allowing us to use any short-term volatility to take advantage of long term opportunities. As such, we are holding more liquidity in the portfolios than we would normally like, providing us with significant flexibility.
So it’s an important six weeks… our message is that we are staying balanced and defensive, armed with liquidity and a winners list of options. On a personal level, irrespective of the way you will vote, I am sure part of you is pleased that there is now a chance we are closing in on the end of this Brexit act. And when the curtain does finally come down, that’s when we will be our most active… the show must go on.