What a Hung Parliament Means for Investors
“The result of an election that we did not need and which the Prime Minister said she was not going to call, has ended up with arguably the worst possible outcome.
The Prime Minister is seriously, some would say fatally, wounded just as we are about to embark upon the most critical negotiations that any UK Government has had to undertake for a very long time. It is very worrying for the UK economy, but it need be less so for investors.
Entering Brexit negotiations against this background we would expect to see further weakness in sterling. This will have the effect of pushing up the value of foreign securities when translated back to sterling.
We remain optimistic about the outlook for the Global economy and disposed to the international securities that we are currently recommending. We particularly like Emerging Markets and European stocks at the moment, alongside leading US companies.
I am delighted that our equity investment strategy since 2010 has focused on foreign, largely US stocks, and these will not be directly affected to any material extent by our domestic UK politics.
Another beneficiary of weaker sterling will be UK companies with a large percentage of their earnings that are derived overseas or with significant export business. One should remember that a number of our major companies, such as Shell, BP, HSBC and AstraZeneca, amongst others, actually pay their dividends in dollars because the bulk of their earnings are derived in that currency.
However, the worry remains around our domestic stocks where most profits are earned in the UK. With sterling only down 2% thus far this morning, we would advise clients to speak to their Investment Managers to ensure that they are correctly positioned overall in this regard or, if you are new to Killik & Co, you can contact us on inf[email protected]
The market sees the possibility that the election will result in a softer Brexit or possibly no Brexit at all, which is why we have not seen a sharper fall in the currency. This is a very difficult call to make and we would continue to recommend investment in good international companies. We would not advise investors to go to cash.
Those who do not wish to make snap decisions should hunker down and put their tin hats on once again. This period of uncertainty will pass, we just do not know how long it will take and what shape our country might be in when we emerge at the other end.”
We encourage you to contact your investment manager if you would like to discuss any of this further.
Or, if you are new to Killik & Co you can contact us on [email protected].