Industry cheers end of uncertainty but remains cautious

Pedro Gonçalves
Industry cheers end of uncertainty but remains cautious


Sanlam UK
Phil Smeaton, chief investment officer at Sanlam UK, shares his thoughts: "As far as equity markets are concerned, this is a favourable outcome. Removing the uncertainty around Brexit in the UK will free businesses to unleash a surge in investment, and consumers should once more feel confident enough to spend their well-deserved wage gains. Investors in the UK can relax as their taxes remain unchanged, and global investors are likely to feel comfortable enough to commit capital to one of the world's cheaper equity markets."

Russell Investments
Van Luu, head of Currency and Fixed Income Strategy at Russell Investments: "While the election outcome was quickly reflected in the pound exchange rate, the direction from here depends on what kind of relationship Boris Johnson really wants to have with the EU. 

"Over recent months, the Prime Minister often catered to two audiences on his Brexit policy. Centrist Tory supporters and voters hope that a large majority in the House of Commons will enable him to change gears and pursue closer alignment with the EU. However, the euro-sceptic wing of his party, the European Research Group, think he must not extend the transition period and instead go for a bare bones trade deal and a "Singapore on the Thames" model.

"Given that, the pound is still undervalued vis-a-vis the dollar on purchasing power parity and that positioning was short sterling going into the election, GBPUSD has the potential to extend its uptrend towards 1.38. 

"Some stumbling blocks await next year."

PIMFA, the UK's trade body for the personal investment services and financial advice profession has urged the new government to show that it has designs beyond Brexit.

Liz Field, Chief Executive of PMFA said: "We are committed to building a culture of saving and investment across the UK and this starts with ensuring that policymakers are able to create an environment where ordinary retail savers can thrive. We look forward to working with the new government in moving towards this goal."

"As representatives of a community of wealth creators in the UK, we look forward to engaging constructively with the next government whatever its colour or composition. When Parliament returns we will do our utmost to ensure that this community is at the heart of any plans which go towards building a culture of saving and investment."

Miles Celic, chief executive officer, TheCityUK, said: "This is a clear result that should allow the country to finally turn the page on the first phase of Brexit.

"With a January Brexit now all but certain, both sides must move quickly to prepare for the next stage of the negotiations. The first phase has been dominated by the impact on goods. This has neglected the 80% of the UK economy made up of Britain's world leading services industries. Ministers should seek to rectify this, consult widely, and focus their efforts on how the UK's global leadership in services industries like ours can be sustained and enhanced over the course of this parliament."

Janus Henderson
Paul O'Connor, head of the UK based Multi-Asset Team at Janus Henderson Investors, assesses the implications of the General Election result for financial markets:

"This election was all about Brexit. The choices that Boris Johnson's government makes on this front will have substantial economic and political impacts on the UK and beyond for many years to come.

"One thing we know is that the immediate priority of the new government will be to seek parliamentary approval for the withdrawal agreement to get the Brexit process formally started by the January 31 deadline. That is now simply a formality for a government that has complete control over parliament. Of course, the withdrawal agreement only covers the UK's departure from the EU. That was meant to be the relatively easy bit of the process - it nevertheless involved over three years of intense political conflict. The greater challenge and the greater uncertainty surrounds the next phase, when the EU and the UK get to work on establishing the terms for future relations in trade and other areas such as defence, security and foreign trade co-operation.

"As things stand, the two sides have agreed on an end-2020 deadline for finalising a trade deal and a transition period until then which ensures that very little changes for business during this phase. The critical issue beyond that one-year time horizon is that the Conservative Party manifesto has pledged not to extend the transition period beyond 2020, which means that the UK looks set to engage the EU next year 2020 to negotiate a trade deal that can be completed by the end of 2020."

Edmond de Rothschild
Gilles Prince, chief investment officer, Edmond de Rothschild (Switzerland) said: "The British people have reached their verdict, Boris Johnson is the big winner - and this time everything is clear, this is the exit. More than a vote in favor of the Conservative Party, the election result confirms the British desire to leave the European Union. Tired of a series of endless twists and turns, the British people did not want to return to a new challenge of Brexit. The Conservatives' irrevocable victory therefore makes it possible to consider the exit from the European Union with the official date of 31 January 2020 as a first step.

"Following the election results, the currency jumped by more than 2% to over 1.34 (vs. Dollar), and judging by the futures market, English FTSE 250 shares rose by more than 4%. In the longer term, it is reasonable to assume that less uncertainty around Brexit will make the UK market more attractive. However, the upturn in the coming days should not make us forget that Brexit is only just beginning, and that negotiating a trade agreement takes time and will be a difficult exercise. The risk premium for UK assets will therefore not disappear completely."

Stuart Clark, portfolio manager at Quilter Investors, comments: "The Conservatives have achieved their aim and have won a sizeable majority in parliament.  As a result we have seen an immediate repricing of GBP reflecting this result and would expect this to follow through into the more domestically oriented parts of the market. 

"This new found confidence could quickly fade, though, with the realisation that the Prime Minister has an enormous amount of work to do to ensure the UK does not inadvertently leave without a deal before the end of the transition period, which is currently slated for the end of 2020. It remains to be seen whether Mr Johnson is committed to that date and a ‘hard Brexit', or whether the strength of this victory allows him to step back from the harder right and negotiate a closer working relationship with the EU. 

"This trade deal negotiation process does seem to be a risk that is currently ignored by markets, instead deciding to focus on the short-term, looming Brexit deadline. 

"The combination of this result and the potential delay to further tariff increases between the US and China leaves a positive environment for riskier assets in the immediate term but Investors need to make sure they are positioning themselves for further volatility to enter the UK and global markets through 2020"

John Stopford, portfolio manager, Investec Diversified Income Fund: "We expect some further recovery in sterling and UK domestic stocks on reduced uncertainty and the removal of the tail risk of market-unfriendly policies  ̶  although a fair amount of this is already in the price, given the polling in advance of the election. UK political uncertainty has manifested in weak business investment, which has contributed negatively to GDP growth for five of the past eight quarters, and a subdued housing market, with national house prices failing to keep track with inflation.

"The Conservative win has provided some near-term economic clarity, as the UK will finally leave the EU and public sector net investment will increase back to historically high levels. We believe markets will begin to anticipate a Boris ‘boom-let'. This would tend to support higher gilt yields (the UK is one of the most expensive government bond markets we cover) and a stronger pound. However, we feel the rally will be limited, due to the potential for a swift post-Brexit transition to further uncertainty about the UK's future trading relationship with the EU. 

"To limit the impact of the election outcome on the portfolio, the Diversified Income Fund was positioned with relatively low weights in UK domestic assets, and overseas positions were mostly hedged back to sterling."


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