Tag Archives: election

June 2017 Market Review

 This edition of the Market Review discusses another surprising election result.

The UK General Election delivered yet another surprising political result. Overall, the market’s response has been measured, but political uncertainty remains high and valuations are no longer cheap following an 18-month period of strong performance. Whilst this dampens our enthusiasm for new investments in the short term, the long-term case for equities remains compelling. Moreover, our emphasis on quality, value and diversification leaves us confident that our portfolios are well prepared for a wide variety of eventualities.

June 2017 Market Review


Points of View: Election results and implications for long term investors

Last week, we saw the Conservative Party falling eight seats short of achieving a majority in the House of Commons. Brexit negotiations with Brussels are due to begin next week but with the result ending in a hung parliament, EU officials do not yet know if the policy outlook will match that mapped out by Mrs May before the snap election.

The market is continuing to digest the election results and the pound is facing some near-term downside risks. Sterling fell to its lowest level for nearly two months on results day and sank further to a seven-month low against the euro on Monday, signalling that investors are worried about the economic ramifications and political uncertainty that will weaken our position ahead of Brexit negotiations. In contrast, the UK equity market has been quite resilient – not least because the large, international companies that dominate the FTSE100 derive a large proportion (c75%) of their earnings from abroad, and a weak currency means that these overseas earnings will be markedly higher when reported in Sterling. The domestic macroeconomics of the UK has little to do with the collection of international businesses that make up the majority of the UK stock market.

For long term investors, the outcome of the election will matter little in the context of returns from a well-constructed equity portfolio that is diversified by company, sector and country. In particular, the aim of such a portfolio is not to outperform the market in any one short period, but to deliver attractive long term real returns. It is also important to remember that investing is also about taking advantage of uncertainty – and the greater the uncertainty, the more likely that irrational price movements will present attractive opportunities for long-term investors.


Points of View: Election clarity

As a general rule, stock markets do not like uncertainty. So when the General Election delivered the unexpectedly decisive result of a majority government, it was not surprising to see the FTSE 100 enjoy a strong one-off relief rally. On the Friday of the result, it rose 2.3% and back above the 7000pts level following pre-election jitters. The fact that the government is a Conservative majority also means that there is minimal disruption to ongoing projects.

The sectors leading the rally were as follows: utility companies, which no longer have to fear a Labour government freezing prices; house builders, which benefit from the mansion tax no longer being on the political agenda; public sector outsourcing companies, which are set to benefit from a Conservative government more likely to use them; and gambling stocks, since the Labour party were proposing tougher regulation on betting terminals.

So which FTSE 100 stock enjoyed the biggest relief rally?  That prize goes to Babcock, which is in the consortium to upgrade the UK’s Trident nuclear submarine fleet; an upgrade supported by the Tories but which was delayed by the coalition and opposed by the Scottish National Party.  The stock enjoyed a near 10% surge on the Friday following three months of nervous trading during which the share price fell 7% compared to peers.

However, the result was not universally good news on the stock market.  One of the notable losers from the election results was YouGov, a polling company whose predictions of a hung government proved inaccurate.


Points of View: Greek Elections

Political uncertainty in Greece has driven further market volatility this week.  Specifically, the Greek government’s failure last week to find a parliamentary majority for its presidential candidate has triggered a snap general election scheduled for 25th January that could bring to power the hard-left Syriza party.  Given that Syriza and its leader Alexis Tsipras rose to prominence through outright opposition to the international bailout that the government negotiated in 2012, this has in turn driving renewed speculation that Greece will exit the Euro.  Indeed, Der Spiegel magazine fanned the flames of speculation further over the weekend with a report that the German government was no longer committed to keeping Greece in the Eurozone at any cost.

Should Syriza gain power it is expected that they will make demands for a relaxation of austerity and a lightening of Greece’s debt load. The dilemma that will then face Ms Merkel is that whilst the German chancellor wants Greece to remain in the Eurozone, she does not want to grant excessive debt relief or other concessions sought by Greeks for fear of overburdening German taxpayers with the costs.

Speculation as to the results and ramifications of the imminent Greek elections will no doubt drive further volatility in the weeks to come. However, proximity to power seems to be tempering Syriza’s hard line stance, suggesting that successful negotiations to stay in the Euro may be possible should they gain power.



Marcus Johnson looks for a pact with the devil and how it revives the Liberals.

Imagine the situation – by forming a coalition government you have rescued the country from a disastrous situation – a threat to the existence of the United Kingdom has been averted – victory over the problems made immeasurably worse by an inadequate uninspired and divided previous government has been secured. But it is time for a general election. As leader of the two coalition parties you are faced with a choice – possible defeat or certain eternal damnation for one or both of you – what do you choose? Defeat would be comfortable – although its existence was threatened and much of its power removed over the last few years there is still a comfortable seat in the House of Lords for life for you if you ignore the temptations offered by what many would regard as a pact with the devil. You have done a job most people regarded as impossible and leaving your successors to deal with the huge debt, housing problems, splitting up Europe and the unstable situation in the Middle East must be tempting. So what will you do?

Well, if it was you or me we might rest on our laurels and take a dignified role as an elder statesman – but then again you or I would need burning ambition, a restless desire to dominate, and a determination to achieve power if we were  to be in that position. Perhaps that is not quite what we are, and if we were we might, like Lloyd George and Andrew Bonar Law, decide that our duty to our country to finish the job we had really only partly completed by defeating Germany (and, of course, Austria and Turkey) came first.

Or as others might put it we were greedy for power and would do anything to retain it – even if a pact with the devil was the means.

So why, when everyone else is looking at 1914 and the acceleration of the final disintegration of the Empires which had been the dominant feature of Europe for 2000 years, am I looking at 1918? Because in 2015 David Cameron and Nick Clegg face exactly the same choice as their predecessors 96 years earlier. The conditions are not really the same – the massive slaughter, the social unrest, the violent revolutions have no echoes today, but the reality is that the possibility of a near certain victory if the current coalition goes into the election united behind a single candidate in each constituency is as real today as on 20 November 1918.

Perhaps I should remind you of what the ‘Coupon’ was. It was a letter signed by the Prime Minister and his deputy which very simply said:

“Dear Sir Eric,

We have much pleasure in recognising you as the coalition candidate for [Cambridge]. We have every hope that the electors will return you as their representative in Parliament to support the Government in the great task which lies before it.

Yours truly,

David Lloyd George and Andrew Bonar Law”.

Sir Eric Geddes (later immortalised as the wielder of the famous Geddes Axe and perhaps partly responsible for the Second World War as the originator of the infamous “We will get everything out of her [Germany] that you can squeeze out of a lemon and a bit more. I will squeeze her until you can hear the pips squeak”) duly was returned for Cambridge with more than 75% of the votes. It was the same story in the rest of the country. Voters love coalitions. In 1931 the coalition candidate won 73% of the votes in Cambridge – even at the height of her considerable local popularity Anne Campbell only got to 53% of the vote in 1997.

All David Cameron and Nick Clegg need to do is:-

1)  decide they want to stay one more term

2)  agree a program for the next parliament

3)  agree a division of ministries

4)  select who gets the Coupon

And it is on this last point that the eternal damnation which surrounds Lloyd George and Bonar Law is the worry. David Cameron has a daily reminder of how the coalition was broken in the form of the ‘1922 Committee’ – which is still how the backbench Tories style their parliamentary group.  The two chief whips in 1918 plotted for six months and when they issued the letter it went to only those that the Government liked – Asquith supporters need not apply – and very few Liberals without the Coupon were elected.

If they do want to stay in power our current coalition would be well advised to resist punishing those who have betrayed it. If they seek to punish those who, like Julian Huppert, removed their support when parliament refused to support government action against chemical warfare in Syria they will split both parties. Even those who, like most of the rebels, voted against sanctions on President Assad, not because they liked him but to embarrass the coalition, should get the Coupon. The only selectivity (and the trickiest bit to agree) can be constituencies without a sitting member supporting the coalition – here they are safe in asking candidates to pledge support for the coalition as the price of receiving endorsement. But today they would also need to have an objective rule which determined who was offered the Coupon in each constituency – again to avoid disputes and allegations of favouritism. I would argue that a very simple rule should be applied in all seats held by Labour and the Scottish National party. The percentage vote of the party holding the seat should be used to rank each seat they hold. The coalition parties would then each take alternative slots in the ranked seats. Any attempt to assess winnability or to trade positions would be too divisive.

So if the two leaders go for another term in this way will either or both of them survive the inevitable victory? The 1918 coalition was divided by protectionism and the liberal split was worst on the subject of the treaties governing our relationship with the other European powers. If the 2015 coalition breaks down it is likely to be because David Cameron fails to keep his rabid anti-European activists under control. In coalition there are too few jobs to bribe those who wish to be awkward and it is too easy for backbenchers to get easy applause by pandering to their extreme supporters. If this logic holds then the possibility exists that Nick Clegg would be the beneficiary – 100 years on from the effective disappearance of the Liberals as the alternative governing party he could well be accepting pro-European Tories into his Democratic Liberals and Progressive Conservative Alliance to win the 2018 election.