Martyn Lockhart is a UK based Popular Investor, trading on eToro as ‘Martyn87’ since 2016.
*Please note the views expressed below are those solely of the author, who is not an employee of eToro. If any Popular Investor wishes to provide an alternative viewpoint, please send an e-mail to firstname.lastname@example.org
There is nothing the markets hate more than uncertainty and as we have seen with the Brexit vote and US Presidential Elections last year, that uncertainty caused huge volatility across all markets and asset classes.
It was no surprise to see the FTSE100 down triple digits on the news that Theresa May had called a snap general election which caught many off guard with its sudden timing. Unlike the US or French Presidential Elections, the UK General Election is a very timid affair in comparison, with the three main UK-wide parties, Conservatives, Labour and Liberals, arguably very close to the centre. The proposal from Labour’s Jeremy Corbyn that there should be an additional four Bank Holidays for each of the four patron saints of the home nations is about as radical as this election is going to get.
So why hold another general election now? The last one was in 2015. The Conservatives won a majority in the last general election but since then, the Brexit vote took place, resulting in the resignation of then Prime Minister David Cameron, and the total collapse of the Labour Party under Jeremy Corbyn. This has seen increased support in the polls for the Conservatives, as support for Labour has plummeted. As she leads the country into the Brexit negotiations Theresa May has seized this opportunity to strengthen her hand in these negotiations by holding another election as the polls suggest she will substantially increase the number of Conservative MP’s in Parliament. It will also shut down her critics who say she has no mandate as she was unelected as Prime Minister. Polls suggest the Conservatives will win this election comfortably the only question is by how many seats. UKIP achieved its goal of Brexit so many of their voters from last time around will more than likely turn out for the Conservative Party.
This election isn’t expected to be much of a contest, there will be no real uncertainty going into this vote due to the polling and the nature of the parties. The most interesting aspect of this election will be in Scotland where the SNP hold the vast majority of the seats. The SNP have been pushing for a second independence referendum and have grabbed the Brexit vote as their justification. For many this vote will be seen as a barometer as to the appetite for a second independence referendum. Polls are suggesting that the Conservatives will receive around 30% of the vote in Scotland, which is unheard of in modern times and would blow a huge hole in the Scottish nationalists argument that Scotland is ruled by a government in Westminster that has no mandate to rule in Scotland. By calling this election Theresa May not only has the opportunity to at least strengthen her hand in the Brexit negotiations, she may also have called the SNP’s bluff and shot down the prospect of a second independence referendum – a fact that would be seen as hugely positive in the financial markets.
Since the Brexit vote last June, the British Pound has collapsed against most other currencies, but in 2016 the United Kingdom was the fastest growing economy in the developed world. Unemployment is at historic lows and for the month of April, CBI Industrial figures showed that UK export orders to non-EU countries rose at the fastest pace on record.
Going into this election the stories that were circulated about what a Brexit vote would do to the UK have not materialised, if anything the opposite has happened. If the electorate answers Theresa May’s call to give her the strongest hand possible, there may be a substantial rally in the GBP as she leads the country from a position of strength both politically and economically. This in turn could have a short term negative impact on the UK100, as much of the increase after the Brexit vote was attributed to the large amount of companies who report their results in USD, which have benefited enormously from the Sterling movements.