Heartwood Investments, a wholly owned subsidiary of Handelsbanken plc, take a look at the likely financial impact of the Conservative Party’s victory in yesterday’s election.
As dawn rose this morning, the results of Thursday’s general election were clear: the British public has given current prime minister Boris Johnson a decisive mandate to govern with the Conservative Party’s largest majority in Westminster since 1987.
Near-term implications for Brexit
This result has provided Johnson with a strong hand in his negotiations with the EU and makes the 31 January 2020 Brexit agreement deadline far more achievable. Importantly, it removes some of the uncertainty which has long characterised the Brexit process.
The initial market reaction
As financial markets opened this morning, sterling rallied strongly against most major currencies and is currently trading at around $1.34 (at 10am this morning) – its highest level against the US dollar since May 2018. The UK stock market also opened higher as investors welcomed apparent clarity. The FTSE 250 index – which has greater exposure to domestically-focused companies – is performing particularly well, reflecting a better potential outlook for the domestic market.
What does this mean for our portfolios?
This outcome should benefit our portfolio positioning. In recent months, we had marginally increased our weighting to UK assets, focusing on small- and mid-sized companies, and we had hedged elements of our overseas exposures. Our initial response to the election result today has been to modestly increase our position in UK property and further increase our exposure to small and mid-sized companies, while trimming our position in government bonds.
We would also note that, as global investors, we have substantial exposure to regions beyond our home market. Yesterday’s apparent agreement regarding phase one of the US-China trade deal was positive for stock markets more broadly and therefore for our regional positions. Crucially, the deal involves rolling back some existing tariffs as well as cancelling new ones (due this Sunday). This reduces a major headwind facing the global economy and, alongside policy stimulus elsewhere, could sustain the current economic cycle.
Heartwood Investment Management provides global, multi asset class investment management services to individuals, financial advisers and institutions. Heartwood Investment Management (Heartwood) is a trading name of Heartwood Wealth Management Ltd, which is authorised and regulated by the Financial Conduct Authority (FCA) in the conduct of investment business, and is a wholly owned subsidiary of Handelsbanken plc. Registered in England Number: 4132340 | Head office: No.1 Kingsway, London, WC2B 6AN |