Sanlam response to UK election result

13 December 2019
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While a Conservative majority win was predicted by the polls, the scale of the victory came as a surprise.  The electorate has given Boris Johnson a clear and decisive mandate for government and although Sterling had rallied into the election, the size of the Conservative majority has propelled it even higher. There is a collective sigh of relief from investors today. But how will this result play out over the longer-term?
 

Market Outlook


As far as equity markets are concerned, this is a favourable outcome.  Removing the uncertainty around Brexit in the UK will free businesses to unleash a surge in investment, and consumers should once more feel confident enough to spend their well-deserved wage gains.  Investors in the UK can relax as their taxes remain unchanged, and global investors are likely to feel comfortable enough to commit capital to one of the world’s cheaper equity markets.
 
The 2% surge in the pound brings it closer to fair value on a purchasing power parity basis, and we can expect the flight to safety in government bonds unwind slightly.  Inflation expectations may tick higher as Boris implements his fiscal spending plans, which would be another reason for economic growth to accelerate.  Just as the US market took off after Donald Trump's market friendly policies were analysed, we may see the UK stock market benefit in much the same way in Britain.

“As global investors, our clients’ portfolios were well positioned for the election – whatever the result. The fact we now have clarity on Brexit is welcome respite from the political noise which has become a feature of markets over the past three years. We are pleased that our portfolio positioning is capitalising on this positive development, and that our patience in investing in some great UK businesses is being rewarded.” - Philip Smeaton, Chief Investment Officer
 

Sanlam View

The ultimate result of the UK general election has had a positive impact on client portfolios.  We have a selection of domestically focused companies and UK funds that benefit from the political clarity which has emerged today.  These companies are strong businesses in their own right and are able to do well even in uncertain times, but the improved political clarity delivered today makes them even more attractive investments. 
 
We continue to construct portfolios that are well diversified both geographically and across different asset classes, and we remain well positioned to protect clients from shorter term risks.  Today’s election result goes some way to removing one of these risks, but we remain ever vigilant to ensure that portfolios are positioned correctly for events like this.  We continue to focus our investments on well-run businesses that are less dependent on the economic cycle and that can deliver sustainable returns given the wider global economic outlook. We have taken steps to protect portfolios from rising inflation, investing in assets that can perform well in an inflationary environment.

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