Richard Flax, Chief Investment Officer
Theresa May has announced her resignation, sparking what could be a fierce leadership race. Officially standing down on 7 June, she will continue in a caretaker role until the next Conservative leader is picked, which is expected by the end of July.
In fairness, Mays departure isn’t a huge surprise. As for her successor, some pundits have Boris Johnson as the firm favourite, followed by Dominic Raab.
Boris has been losing weight and appears to have invested in a comb, so he’s clearly taking the whole thing quite seriously.
How does this impact Brexit?
The problem, of course, is that Theresa May’s departure doesn’t necessarily clarify the outcome of Brexit.
Johnson claims to be happy to leave without a deal, even if voting in Parliament tried to rule out that possibility.
The EU won’t be keen to re-open negotiations – it’s already taken far too long. You might expect a new Prime Minister to ask for an extension to the Halloween deadline, in order to build a consensus, but that has its own problems. Namely that there appears to be no consensus in Parliament for any particular outcome.
The European election results this weekend probably won’t give too much guidance either. The Brexit party is expected to do well, as will the agglomeration of Remain parties – Lib Dems, Greens, SNP, and Change UK. The Conservatives and Labour will have suffered if voters were unable to remember what they stood for when it came to placing their ‘X’.
Labour have come out immediately demanding a general election – which should be in 2022 under the Fixed Term Parliaments Act. In order to have an election earlier than that, you’d need to have two/thirds of Parliament backing you, or a no-confidence vote passed in the government.
Labour tried, and failed, with a no-confidence vote in January. The Tories and DUP together still have enough votes to fend off another no-confidence vote – especially with the promise of a new leader hanging in the air.
If we did see an election pre-Brexit, that could cause some short-term disruption for UK assets, either because of increased Brexit uncertainty or because the possibility of a Labour government would be taken as negative for UK assets.
How this could impact your portfolio
In the short-term, we don’t expect much impact on markets. May’s departure was largely expected and doesn’t provide much clarity on the outcome of Brexit.
If a no-deal supporter becomes Prime Minister, the probability of no-deal will rise and we continue to believe that would be negative for UK assets. But the move in sterling from $1.32 to $1.26 probably reflects some of that already.
As for portfolios, our Brexit ISA campaign highlighted how Moneyfarm’s globally diversified and expertly managed portfolios are built for life beyond Brexit. Times (and Prime Ministers) might change, but good investment strategies don’t.
Our team have been adjusting the investments in our portfolios over time to ensure we’re minimising risk and making the most of global opportunities – of which there are many.
It’s tempting to consider reducing some of our sterling exposure further, even after the recent move. We also continue to debate increasing our FTSE 100 exposure given the valuation.
But, in general, we’re not inclined to make any sudden moves in reaction to today’s news. We build and manage portfolios with a ten year view, as we firmly believe time is the greatest tool for generating and maximising long-term returns.
If you have any questions about how recent political moves might impact your portfolio, or the decision-making behind your portfolios, please get in touch with your Investment Consultant on 0800 4334574.