Following last night’s General Election, we now have a hung parliament – as we did back in 2010. The immediate upshot this morning was a fall in sterling of around 2% but at the same time a rise in the FTSE 100 of over 1%, with the index reaching 7545.12, not too far from the current intra-day record of 7,598.99.
The two movements are somewhat connected as the index rise is partly due to the fall in sterling, as many of the major FTSE100 companies report revenues in dollars and have large overseas earnings.
However, investors could rightly be concerned about the impact of uncertainty on markets. Whilst Theresa May is now forming a government with the DUP, to provide ‘certainty’, the hung parliament does mean that there could be a period of political stalemate, leading to no major policy changes. This means a sort of status quo for companies, with no need to change their operating plans dramatically – and so will help markets.
So even though it was a dramatic night, for investors, it is probably a case of keeping calm and carrying on.
Investors should always be looking to the long-term, ideally taking a minimum three to five-year view on their portfolio. Inevitably, there will always be unexpected events along the way – and these need to be appraised – but with the right holdings, history suggests that equities and funds tend to perform well in the long-term. What with Brexit last year and the US election, markets have had to deal with quite a few ‘shocks’ recently and yet so far have come through relatively unscathed.
In the short term it means we are unlikely to see any interest rate rises and sterling is unlikely to strengthen that much and this could help the major companies relying on overseas earnings.
However, it is also likely that we will see some volatility and this always presents potential buying opportunities. So holding some cash rather than being fully invested could also make sense.
On other matters, for pensioners there could well be a reprieve on certain issues such as the ditching of the pension triple lock, as the DUP’s manifesto is against its abolition, as well as possibly the social care plans, so as mentioned above, we have to wait and see what happens to some of the Conservative manifesto pledges.
So a year on from the EU referendum and another surprise vote. A bit of volatility is inevitable in the next few months but being well positioned in the market is still probably the best option for most investors.
To discuss the aftermath of last night and its impact on your investment and financial planning, contact us.