Election commentary by Investment Manager David Battersby
A second election in as many years and the Conservatives are still the largest party but no longer with a majority so how did this come about. On 18th April Theresa May announced a snap general election to take place on Thursday, 8thJune. This was a surprise even to her own side as she had previously said this was not her intention. However, it seemed an opportune moment to consolidate her support creating a strong bargaining position for Brexit.
With labour infighting the election was Theresa May’s to lose and with low volatility in the stock market it appeared the markets were considering this a done deal. However, whilst the Conservative party sought to make it all about Brexit, Jeremy Corbyn the Labour leader instead focused on social issues and education offering free university places. This obviously played to younger voters resulting in a record number of young people registering to vote. By May bank holiday it was clear that the Tories need to “re-launch” their campaign and later in the week sterling began to fall on concerns that Theresa May could possibly not get sufficient seats necessary for a majority. It was also suggested she may not last as leader if she was seen as the one to lead the party to defeat.
However interestingly, not all market commentators viewed this as bad news. JP Morgan suggested that the strong Tory win would lead to a hard Brexit which could be detrimental to the UK economy although strong leadership was thought to be an imperative for the Brexit negotiations and whilst labour sought a softer approach without immigration targets they would have probably found themselves adopting a harder line to keep in line with broad opinion. The terror attacks in Manchester and London had an impact as Jeremy tried to blame the Tory government leaving him open to criticism that he was making tragic events political. The FTSE 100 closed at 7,449.98 on Thursday, 8 June and then opened up rising quickly to a 1% gain or 80 points but then fell back.
When voting closed at 10pm the exit polls showed the Tories winning just 314 seats, short of a majority by 12. The outcome was revealed many hours later to be remarkably similar, with the Tories on 316. This means a hung parliament however the Conservatives remain the largest party at Westminster but will need to form an alliance in order to form a government. The most likely partnership is with the Northern Ireland Democratic Union Party but this will come at a price as a hard (Tory) Brexit is seen as bad news for Ulster. They have 10 seats which when added to the Tories 316 will give 326 and as Sinn Fein (7) do not take up their seats this brings down the majority required to form a government. Theresa May is now mortally wounded but her current position is not untenable as there is no obvious candidate to take over immediately as this would weaken the UK government’s position further in light of the forthcoming Brexit negotiations which are due to take place in nine days’ time.
As a result there is a strong possibility that we will have another election before the year is out with Mrs May making way for a successor in an orderly manner. The question many are asking is what brought about this result. The answer is that people vote with their wallets, and the young, enticed by Jeremy Corbyn’s promises for free education and the fact that he came across well during the campaign trail whilst the Tory manifesto was vague on detail making it all about Brexit and strong leadership, which was described rather eloquently by Caroline Lucas of the Green party as arrogant. Overnight sterling was down 2% initially but has since recovered and by the time the stock market opened at 8am it had recovered slightly to down 0.42%. The FTSE 100, which is made up significantly of overseas earners, was soon up 80 points or 1%. However Large Cap domestic stocks were in negative territory as were smaller companies. Sectors that had fallen the most were Retailers, Property, Housebuilders and construction with Taylor Wimpey and Crest Nicholson falling alongside Lloyds Banking Group.
Theresa May’s vote for a strong position on Brexit has failed and the EU negotiations may now be delayed as we have lost bargaining power which assists the European Union who do not wish us to leave. Anyone for another election?
David Battersby – Progeny Asset Management