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Navigating the general election noise

On Tuesday the collective sigh from the British public was almost audible; I for one am tired of the political fighting, but it seems we have one more before the larger battle with Europe. Theresa May has announced a general election on 8 June, one which could give the chief Brexit negotiator more power.

Another general election means more uncertainty, and just after sounding the gun on the two-year timeline for Brexit negotiations. There will be many sleepless nights in the run up to 8 June, and although we’re being led to believe it might be a one-horse race, we have recent experience of how quickly things can change.

With an 18-point lead over Labour¹, Theresa May’s government looks on course for victory. The Conservatives are sitting pretty at 45%, while Labour trail behind at 26%. The rose isn’t the only party wilting though, with the Lib Dems at 10%, UKIP on 9%. The SNP holds a 5% share and the Green Party is on a steady 4%.

Party policies

Raising £500,000 in just 48 hours must have the Liberal Democrats in a good mood. Head honcho Tim Farron has pledged that the pro-EU Lib Dems will clamp down on tax dodging and introduce reforms that will encourage low and middle-income earners to save for retirement.

Conservative May seems confident the UK is behind her and her hard-line on Brexit, claiming it’s just the politicians in parliament failing to understand the impact of last year’s Leave vote. May has called this the Brexit election and wants the result to add authority to her strategy.

There’s rumours Chancellor Philip Hammond will use this election to reverse the Tory pledge to leave income tax and national insurance contributions unchanged until 2020. That’s hardly a surprise after his post-Budget U-turn.

Labour leader Jeremy Corbyn isn’t convinced the election is a “foregone conclusion” – he wouldn’t – and has unveiled himself as an anti-establishment, populist candidate – a strategy that’s been successful in recent global elections. Although he’s given mixed messages over a second referendum, Labour’s said this isn’t party policy.

Described as some of Labour’s most left-wing policies; Corbyn has promised tax increases for those earning £70-£80,000, free school meals, a £10 per hour minimum wage, and pension perks.

As the parties pull themselves together, rehearse their policies, and start knocking on doors, turbulence is likely to increase.

Ignore this noise; it probably won’t do your investments any good if you try and beat the market to make short-term profit. Keep it simple and focus on your long-term investment goal. If you’re investing for your retirement, what happens over the next six-and-a-bit weeks will have little impact on your wealth in two-or-three decades.

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Perky pound

Although this snap election has plunged the UK into more uncertainty, currency pundits are backing a ‘good’ outcome – whatever that looks like. Sterling bounced from the doldrums to a six-month high against the dollar this week – it had plunged back to a 31-year low back in January.

As this is a Brexit election, there could be a couple of reasons behind the rally; either the market’s confident Theresa May will be elected into power with a bigger mandate and authority behind her Brexit policy, or there are some who are betting on a second referendum.

The pound’s resurgence is great news for holidaymakers, and quite good timing in the run-up to the summer holidays. When my family hits the continent’s beaches this summer, I should get more euros for my pounds – if the momentum sticks.

It’s been a mixed bag for London’s indices though. The FTSE 100 – an index of the UK’s 100 largest companies – slumped, quickly handing back gains that propelled it to a record high only last month.

The blue-chip index typically has an inverse relationship with the pound as a bulk of its earnings are generated abroad. Translating foreign currency, usually US dollars, into a weaker sterling is a boon for the corporate balance sheet – and many global companies have been surfing this tailwind since the referendum last summer. If sterling increases in value, companies will get fewer pounds when translating earnings from dollars.

The FTSE 250, however, is back on the offensive after slipping following initial uncertainty from May’s initial call for a general election. This index is more exposed to the domestic market, so will more likely benefit from a stronger pound and growing economy.

Domestic or global portfolio exposure?

Globally diverse portfolios, like mine, came under fire this week and, if the pound’s momentum continues and the economy keeps growing, risks remain. But if the shock election throws up any off-script surprises, or any divorce negotiations with EU break down, any progress will be quickly unwound.

Investments can increase and decrease in value; it’s a fact of life. A globally diverse portfolio looks to offset negative performance in some markets with the better results elsewhere. More importantly it stops my heart from jumping in my throat whenever the UK faces any trouble. It also means when I go on holiday I can truly switch off, without worrying that I’ll come back to a portfolio in tatters.

Even with politicians providing an anti-globalisation mouth-piece for protectionist policies, geographical diversification really is a good way to manage specific risks in Europe (French election), the US (Donald Trump actually delivering on any of his promises), and emerging markets (Chinese stocks hit a two month low this week).

¹Financial Times UK General Election poll-of-polls

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