This article is written and provided by Ahmer Tirmizi, Investment Strategist, Seven Investment Management on 30 October 2019.
Parliament finally agrees on something, that isn’t fit for purpose
The announcement of the general election on 12th December doesn’t come as much of a surprise. With six weeks to go, it’s too early to speculate but let’s lay out the things we know and what we don’t, to help guide us:
What we know?
The Conservatives have been planning for it since Boris Johnson took office. The Prime Minister has done a good job of pretending to care about Brexit. That’s how he became PM. His actions up until this point appeared to be about Brexit but actually they were about one thing – winning a general election. The no-deal prep, the “rather be dead in a ditch” and the infamous letter without the signature – all designed to avoid losing votes to the Brexit Party. The announcement of a deal – keep enough One-Nation Tories onside. Get a third of the votes and win a majority. Simple.
Labour’s dithering has been a problem but don’t count them out. Labour’s strategy has been less clear – and we use the word “strategy” loosely. The posturing around delaying the election in the name of avoiding a no-deal was intended to extend Brexit beyond 31st October. Probably so they could ask: “Where’s the ditch, Boris?” Labour and Corbyn were polling poorly before the last election but managed to rescue it in the end. The last election showed they have a slick social media operation which they hope will mobilise enough young voters, but other parties have caught on to this.
Lib Dems and SNP are confident. After all, it was them who broke the deadlock in parliament to get this election in the diaries. The SNP will hope to hoover up votes in Scotland with a promise of a second independence referendum. The Lib Dems are the anti-Brexit party. No one knows what else they stand for – but who cares?
What we don’t know
The Brexit party are an unknown electoral force. The Nigel Farage circus has gone quiet recently, but the Brexit Party is still well funded and will be looking to campaign right across the country. The Brexit Party’s existence explains Labour’s dithering and the Conservatives’ selection of Boris Johnson. Watch this space.
Referendums via first past the post. Brexit will be central to the election campaign. But there are some uncertainties around this. The referendum result was close and most polls suggest it would be close again – but how does this play out in a FPTP system? And how many people will vote based on Brexit when other issues are presented to them? Traditional lines of left and right may be thrown out the window – but which window?
Campaign trails change the dynamics. With only 6 weeks to go, small surprises could make a big difference to the outcome. Particularly if they come late. We saw this at the last election campaign. The betting odds suggest a Conservative majority, but we wouldn’t bet on that just yet.
So what does this mean for our portfolios?
The outcome of the election is a double-edged sword. The economy and financial markets may either have to deal with a combination of a hardish Brexit and business friendly policies under the Conservatives or a softish Brexit and business unfriendly policies under Labour. This leaves UK assets under the same uncertainty we have seen over the last three years. Irrespective of the result, we continue to ensure our portfolios are well diversified and globally exposure. This means they are not especially vulnerable to UK specific concerns.