Investors are divided as how to respond to the prime minister’s decision to call a snap election with some looking for buying opportunities and others taking a more defensive stance.
Steven Andrew, multi-asset manager at M&G Investments, said the surprise move by Theresa May (pictured) added to global political uncertainty, with investors already grappling with the start of French presidential elections and rising tensions between the US and North Korea.
Tomorrow’s vote by MPs on reversing the Fixed-Terms Parliaments Act after just one general election showed nothing in politics should be taken for granted, Andrew said.
Nevertheless, he argued that while events until polling day on 8 June were unlikely to be smooth, the longer-term investment perspective picture looked more secure and he was looking to take advantage of any stock market volatility.
‘As always, we remain focused on the things we can know rather than the things we cannot. Appraising the UK investment landscape in this context suggest to us that equity assets remain attractively priced – especially in the context of a robust UK and strengthening global economy.
‘With that in mind, we would look to add to our UK equity positions should political-inspired volatility offer material discounts from here,’ Andrew said.
Nathan Sweeney, senior investment manager at Architas, the AXA-owned fund manager, was more cautious. He said he had slightly upped his holdings in gold, which he had added to his portfolios last year, and raised his exposure to funds not focused on the main stock market.
‘We see gold as providing a level of downside protection in portfolios, which is what we are seeking at the current time,’ Sweeney said.
‘Alongside this we have increased our exposure to alternative assets, such as infrastructure, renewable energy and catastrophe bonds. This includes the John Laing Infrastructure (JLIF ) and John Laing Environmental Assets (JLEN ) funds,’ he added.
Justin Urquhart Stewart of Seven Investment Management said today’s news underlined the importance of having a well-diversified portfolio. ‘Good investment is about managing the risks of the unexpected, and here is a great example.
‘The consensus view has been for a weaker pound, which would benefit the overseas heavy FTSE 100 as we headed towards a harder and harsher Brexit.
‘However, just when everyone is facing one way (the consensus way), then it is usually the time to look the other way and manage the risks of exactly the opposite. This scenario could be a higher pound and a falling FTSE 100 – it seemed so unlikely, but so did the UK referendum and US presidential election results last year,’ Urquhart-Stewart added.
Russ Mould, investment director at fund supermarket AJ Bell, said investors could take some reassurance from history and opinion polls, in as much as these could still be relied upon after last year’s electoral upsets.
‘Analysis of general election results since the inception of the FTSE All-Share in 1962 shows that the index has tended to do better, on average, under Conservative prime ministers,’ he said, referring to May’s big lead in the polls.
In addition, the experience of the mid-term elections in 1966 and 1974 which returned Labour’s Wilson and Callahan to government with strengthened majorities sugggested the stock market preferred a win for the incumbent, Mould said.
May said the election was needed ahead of the start of negotiations to leave the EU. She accused opposition parties of ‘game playing’ and said an election was needed to ensure stability during the talks.
‘In recent weeks Labour has threatened to vote against the final deal to be reached with the European Union, the Liberal Democrats have said they want to grind the government to a standstill and unelected members of the House of Lords have vowed to fight us at every step.’
The prime minister needs a two-thirds majority in the House of Commons to vote in favour of the election.
Labour leader Jeremy Corbyn backed the call for election, meaning the vote will pass through the Commons unless Labour MPs rebel against their leader.
‘Labour will be offering the country an effective alternative to a government that has failed to rebuild the economy, delivered falling living standards and damaging cuts to our schools and NHS.’
David Page, senior economist at AXA Investment Managers, said May was clearly seeking to reduce the influence of Tory back-benchers pusing for a hard Brexit and a voice on other domestic issues.
However, the decision to go to the country was not without dangers for the prime minister, he said. If the election became a de facto second EU referendum, it could enable the Liberal Democrats to make large gains as the party for ‘Remainers’, raising the prospect of another coalition government.
Page said while many would view the election as a contest between May and Corbyn, ‘nevertheless, there must be a real risk that the outcome of an 8 June election would be to make a material change to the government and hence alter the course of the proposed Brexit negotiations.’