We consider the general election result and market reaction.
Today we wake up to the news of a hung parliament. The Conservatives face the prospect of trying to build a minority government with the Democratic Unionist Party.
This election result raises heightened political uncertainty in the UK – particularly in the short term – around how the minority government will be formed, which parties will make up the coalition, and what this means for the Brexit negotiations. We believe this increases the likelihood of a softer Brexit with a need for a transition period after the UK leaves the EU. However, with no clear political leadership in the UK, the EU takes the upper hand.
Financial markets have opened this morning with the pound down by more than 2% against the dollar, though levels remain well above the post-EU referendum lows of last year. UK equities have risen by nearly 1%, while bonds have seen small losses.
My team has been closely following the election over the past few weeks to position our managed portfolios for a range of outcomes. Indeed, on Tuesday, we cut our UK equity holdings because we saw a heightened risk around the election, adding to Swiss and European stocks. We believe global stock markets will continue to do well as the global economy continues to grow at a solid pace, and so we maintain larger than normal positions in the US, Japan and emerging markets to capitalise on this.
Political uncertainty is rarely good for government bond markets. But we have been cautious on government bonds for some time now, with a lower than normal weight in our managed portfolios.
Given the improving global outlook – together with today’s increased uncertainty over domestic UK politics and Brexit negotiations – holding a well-diversified, global, portfolio has never been more important for UK investors.
Risk warning: As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past or future performance indications are not reliable indicators of future performance.