Alpha Election Special!

Snap!

Theresa May must have been studying recent polling data with the Conservative Party on 42% and the Labour Party on 27%. This fact, together with attempted opposition party meddling in her Brexit negotiation process, has forced her to ‘call their hand’, with a snap general election on June 8th. Sterling has perked up on the news. If the Conservatives win a decent enough majority, one would think the chance of hard Brexit increases. May, like her new best friend Donald Trump, has shown a remarkable ability to perform U-turns, and the hope might be she treads a softer Brexit path. With global tensions rising in North Korea and relations with Russia at an-all time low, the UK and Europe may need one another.

FTSE Falters but Sterling rallies

Whilst markets globally were weak yesterday, the heavily overseas orientated FTSE 100 was a notable underperformer. Our main index has been a beneficiary of a weaker pound that resulted from the EU referendum, however sterling has strengthened to its highest level in 2017. Its underperformance also coincided with a particularly weak day for commodities companies.

The snap election will eat into the ‘Brexit two-year clock’, but it is unlikely to materially impact the UK economy, although some government spending decisions and company recruitment could be deferred. Domestic energy bills may also feature once again in the election campaign, which may overshadow the UK utility sector. However, the UK economy has so far proved more resilient than many expected.

French Elections – Crackle!

Ahead of the UK general election, we will have the outcome of the French election on May 7th. Before this, we find out the result of the first-round vote on April 23rd. Given the far-right candidate Ms Le Pen wants to pull France out of the euro and the far-left candidate Mr Melenchon wants to overhaul the EU and take France out of NATO, markets are hoping that the second-round run-off vote will end up between the two centre party candidates Mr Macron and Mr Fillon. However, it is arguably the case that should one of the extreme candidates triumph, then this would be to the benefit of the UK’s negotiating position, although clearly this would also likely be a very unwelcome wider development for the EU. In the event the polling data is once again wide of the mark and the far-right or far-left candidate makes it to the final vote then expect further market volatility.

Global Politics

Quite how the North Korea and USA game of brinkmanship plays out is hard to say, as the actions of both leaders are difficult to predict. The uncertainty will create further volatility.

Our stance

Yesterday the IMF said the global economy could be at a turning point with growth picking up to 3.5% in 2017. The snap election is therefore unlikely to change our long-term investment stance. We already have a number of interesting investment ideas on our radar screen and the current volatility may well provide the opportunity to act.

Pop!

Theresa May has potentially undertaken quite a high-risk strategy. She is gambling that the strength of feeling by the ‘Remoaners’ has been sufficiently reduced to prevent a protest vote, which would undermine her core reason for the snap election, namely her call for unity.

However, given the perceived weakness of the opposing Labour Party, there is merit in this position, which in addition would give an elected mandate to her leadership and also allow her to run on a manifesto of her choosing, rather than be dictated by her predecessor’s. Given the number of elections globally over the last 12 months and those already scheduled for the coming months, we certainly have sympathy with Brenda from Bristol’s initial response, namely ‘not another one!’

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This publication is for informational purposes only and should not be relied upon. The opinions expressed here represent analysis by an Alpha Portfolio Management representative at the time of preparation and should not be interpreted as investment advice.

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