FTSE Flat as May Remains Prime Minister

Theresa May has formed a Government with the Democratic Union Party - and as far as the FTSE is concerned it has been business as usual. We talk to Dan Kemp

Emma Wall 9 June, 2017 | 4:06PM
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Emma Wall: Hello, Dan.

Dan Kemp: Hello, Emma.

Wall: So, quite a big day today. We've had the general election results. We started the morning in a bit of turmoil. But by this afternoon, actually, things calmed down and we do know who is going to be the Prime Minister and we do know who is going to be in government. Who is that?

Kemp: Absolutely. So, we have the same Prime Minister we had when I went to bed last night. So, Teresa May is back in power. And so, again, not much has really changed. She didn't have a big majority beforehand. She has got an even smaller majority now. So, she is faced with a lot of the constraints that she had before, but of course now has to keep the DUP happy as well. So, she has got a few things on her mind, but really very little change for investors.

Wall: And that's the key point here, isn't it, because if you look to the FTSE 100 today and you weren't aware of the news headlines, you'd have no idea that it was a momentous day? The FTSE 100 has moved up and down by a percentage point and indeed, the FTSE 250 has also had ever so slight flicker. I mean, it does not look like it's been a big news day, a big macro news day.

Kemp: No. Exactly. And there's a lesson for us that we don't have to worry about the big macro news unless it really impacts long-term valuations.

It makes very little difference. Sometimes the market noise, the market movements, create opportunities to buy things cheaply, but really macroeconomics has very little to do with investment. And so, it's a great example of why people should stop worrying about macroeconomic events, stop trying to predict the political events and really focus on the long-term, focus on valuations.

Wall: So, for focusing on valuations, what is your opinion of the U.K. stock market at the moment? Because we have had a significant rally over the last year, well, since Brexit, does that mean that people should stop to take those gains or have we got further to rumble on?

Kemp: Well, of course, that is to some extent predicting the future, which I try desperately not to do. But if we just look at it from a long-term valuation point of view, U.K. equities look pretty good value still, clearly, not as good as they were and that's annoying. There were less things to buy. But still reasonable valuation in the context of the world's equity markets. Certainly, they look more attractive than the U.S. equity markets. So, there's still opportunities there.

But really, people should be thinking about how long they are prepared to invest for. Because whenever we get these periods of very strong upward movements, there's normally some sort of a correction and it maybe that we are borrowing returns from tomorrow and there may be some painful event.

And so, if you want to invest in the next couple of years, then you want to be thinking about being a little bit cautious, not just your U.K. equity exposure but across the board. But if you have a long-term investment horizon then what happens over the next year or two is unlikely to matter. And so, really maintain your focus there, know that over the long-term U.K. valuations look pretty good and stay in there.

Wall: Dan, thank you very much.

Kemp: You're welcome.

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Emma Wall  is former Senior International Editor for Morningstar

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