He commented, ‘the surprise announcement by Theresa May that there will be a General Election….ensures that UK politics remains a ready source of uncertainty for investors already trying to digest a full menu of political risk this year, ranging from this week’s French elections to fears of potential conflict with North Korea.’
Andrew continued, ‘The announcement – only one General Election in to the UK’s ‘Fixed Term Parliaments Act’ – is an interesting reminder of the fact that nothing in politics should be taken for granted. With that in mind (let alone the experience of 2016), confident predictions of the outcome of June’s vote should be avoided. The path between here and 8th June is unlikely to be a smooth one. To the extent that this leads to volatility in financial markets, it is important that investors are alive to the potential opportunities that such price behaviour may present.’
The Fixed Term Parliament Act was introduced by the coalition government, and implied that elections would happen at five year intervals, removing the perogative of the Prime Minister to hold snap elections, to repeal the act requires a two-thirds majority, implying that the Labour Party will vote with the Conservatives to repeal the act, tomorrow morning.
Andrew contiinued, ‘As always, we remain focussed on the things we can know rather than the things we cannot. Appraising the UK investment landscape in this context suggest to us that equity assets remain attractively priced – especially in the context of a robust UK and strengthening global economy. With that in mind, we would look to add to our UK equity positions should political-inspired volatility offer material discounts from here.’
‘The reaction of sterling on the foreign exchanges has been to rally subsequent to the announcement of an early election. The coming days will likely yield many explanations as to what sort of result this suggests is being priced-in by markets. While making for interesting copy and fuelling some debate, rationalising price moves in such a way is usually unhelpful from an investment perspective. The facts around the UK’s comparative growth, inflation and interest rates situation, combined with the sharply weaker path already followed by sterling over the past year, suggest the currency is pretty cheap and could rise from here.’
The M&G Episode Income fund has returned 50 per cent over the past five years.