The outcome of the General Election has turned out to be probably the worst possible from the perspective of investors. This is not a political observation, simply recognition that we now have a raft of uncertainties ahead of us. It is little surprise that sterling has fallen, or that the larger UK companies, with strong overseas earnings, opened higher and the more domestic-oriented medium sized companies slipped back. The question, though, is what do we do now?
In order to answer this, we need to consider where we are. Overall, the UK economy has been in pretty good shape. Despite some dire predictions, it has actually proved to be one of the stronger global economies. There are, though, some challenges. However, this growth has slowed recently and there are some worries over consumer confidence. The prospect of a tax and spend government may have receded, for now, but a slowdown in consumer spending would not be good news. The concern is that it might translate into a recession – not necessarily a bad one but, nonetheless, not something investors would welcome.
Reacting too quickly in circumstances like this is not always the wisest thing to do. To be clear, this is not a crisis – no matter how much some parts of the media may want to build it up to be. We want to reflect carefully on the medium and longer term implications before taking action. This outcome was one that we had specifically considered and we had reviewed our positioning accordingly. Our larger companies’ exposure, together with our international – particularly our US dollar exposure – should be real beneficiaries today. Our focus now will be on how best to adapt our positioning to address the coming months rather than days.
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