UK Election Could Create Dangers for Investors

Political change instinctively has an impact on investment markets in the short term but rarely has a sustainable impact in the long term

Dan Kemp 25 April, 2017 | 8:00AM

Following Theresa May’s announcement for a ‘snap election’ on the June 8, the U.K. has ended a brief era of fixed-term parliaments that lasted a mere seven years. The impact of this election has caused speculative activity among traders, with sharp moves in both the value of pound sterling and U.K. companies.

The Long-Term Impact on Markets

Many investors are especially interested in the impact of the U.K. election on U.K. company shares, U.K. government bonds and the pound sterling. However, before considering the impact, it is worth reminding ourselves of recent developments in the difference between price and fair value.

Over the last few years, both the number and range of attractive opportunities in the U.K. have declined and consequently the outlook for investors has worsened as asset prices rose relative to their long-term fair value. As one key example, U.K. company shares rose strongly in price in the second half to 2016, following the Brexit vote, further reducing the long-term expected return for investors. While our portfolios benefited from this rise, we are looking forward to the opportunity to increase our exposure to this high-quality market at a lower cost.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Dan Kemp

Dan Kemp  is Chief Investment Officer, Morningstar Investment Management EMEA

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