Monday 23 April 2018

The only certainty about UK election is uncertainty, investors now fear

david cameron
david cameron

Simon Read

BRITAIN'S general election will bring uncertainty for investors rather than ending it, as normally happens when an election is decided, according to a number of investment analysts.

"After this election, we may have just as much uncertainty as we have had in the run-up," warns Tom Stevenson, director of Fidelity Worldwide Investment.

The possibility of a hung parliament brings questions, but that's not the only uncertainty that will alarm stock markets.

"We don't know exactly what form a hung parliament might take," Mr Stevenson points out.

"The Conservatives and Labour are neck and neck at the moment, and the Lib Dems, who were the kingmakers in 2010, may actually not win so many seats this time. So we don't know which alliances there may be." There's also a risk of a second election. "Depending on May's result, we might see the Conservatives or Labour ploughing on, trying to run a minority government and, a bit like in 1974, we could end up with a second election within the year," he says.

Jason Hollands, managing director of Tilney Bestinvest, makes a similar point: "With combined backing for the two major parties at a low and significant support for insurgents (whether the Greens, Ukip or SNP in Scotland) thrown into the mix, the outcome of this election is self-evidently too close to call," he says.

"There is a high possibility of another hung parliament and even talk of a potential second election later this year, a situation that would have parallels with 1974, when, eerily, the oil price was also a major factor driving the news, as it is today."

Mr Stevenson says an election promise made by British prime minister David Cameron could also lead to market-worrying uncertainty. "The Conservatives have committed themselves to an in/out referendum on our EU membership by 2017. If the Conservatives win the election, that could lead to two years of uncertainty about our relationship with our biggest trading partner, which is not good news for the pound," he warns.

For all these reasons, he says investors need to be extra-careful about ensuring their hard-earned savings are not too focused just on the UK. "This is quite a good time to make sure your portfolio is pretty well diversified. The UK market is quite reasonably valued and has good income attractions, but the political uncertainty may mean that it lags for a while." He points out that other markets are doing well - "Europe is doing well, Japan is looking good."

Mr Hollands points out that investors could benefit from overseas markets by investing in UK-listed stocks.

"It is worth pointing out that, in the main, the UK stock market is very international in nature, with some estimates suggesting that up to 80pc of revenues generated by UK plc is being earned overseas," he says.

"So if anything, knee-jerk selling of UK equities could represent a buying opportunity. It takes guts to invest when others are running for the exit - but it can also pay rewards," he advises.

Pensions have become one of the main political issues; the coalition government made sure that its major pension freedom reforms were pushed through before the election. Will pension reform be a major factor?

Yes, says Tom McPhail, head of pensions at Hargreaves Lansdown. "If we get a Conservative government, we're unlikely to see any changes to the pension freedoms. But if we get a Labour government, I think we'll start to see some adjustments."

But one thing many analysts are agreed on is that these are uncertain times for the UK. (© Independent News Service)

Irish Independent

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