Prime Minister Theresa May’s call for a snap general election could mean a smoother transition for the UK as it exits the European Union, according to some investors, but others are upping their allocation to gold as geopolitical uncertainty shows no sign of abating.
UK Prime Minister Theresa May has announced a snap election in today’s surprise mid-morning statement. The general election will be held on 8 June.
After a sharp sell-off ahead of May’s announcement, the pound surged to a five-month high $1.2729 against the dollar, from a low of $1.2513.
In contrast the FTSE 100 is trading at 7,195 points or 1.8 per cent lower on the day.
With the polls suggesting the Conservatives are likely to win more seats, experts invite individual investors not to panic and avoid making dramatic financial decisions.
Pimco head of sterling portfolio management Mike Amey says a party majority in the Government should give the UK a smoother transition period as the UK prepares to leave the European Union.
He says the initial muted market reaction should also reduce the risk premium in UK assets and put upwards pressures on UK gilt yields and potentially support the pound.
AJ Bell investment director Russ Mould says tactically it is understandable investors might want to invest more in gold or property but says they shouldn’t make any changes to their portfolio and only make sure it is well balanced.
He says: “Assuming polls are right on Conservatives and history is of any guide, investors shouldn’t panic. Markets tend to do better with a Conservative government than a Labour one and the same is true for sterling.
“Stock valuation and bonds are driven by profits made by companies. Is [the snap election] going to make a huge difference? You need to keep this [historical] event into context.”
Hargreaves Landsown senior analyst Laith Khalaf says while a snap election can bring some short term market volatility investors should not let this event disrupt their financial goals.
Jonathan Davis Wealth Management managing director Jonathan Davis agrees with Mould and Khalaf on the limited effect of the early UK election on markets.
He says: “As soon as I heard the news [of the snap election] I took immediate action and did nothing. I will do the same on the day of the election.
“The UK election won’t have any effect on equity markets. The Conservatives are going to win and there’ll be no effect commodities either, bonds as well as sterling.”
But others suggest investors should however increase protection to their portfolios.
Architas senior investment manager Nathan Sweeney is upping the exposure to gold as well as investing in infrastructure funds.
The investment manager had already been adding defensive position in the portfolio because of geo-political uncertainties.
Sweeney says: “In recent weeks we have increased our allocation slightly to gold after introducing the position in 2016. We are potentially in the advanced stages of this current market cycle and think it prudent to add in an asset that has no counter party risk, duration risk and can do something truly different in a period of stress.
“We see gold as providing a level of downside protection in portfolios, which is what we are seeking at the current time. Alongside this we have increased our exposure to alternative assets, such as infrastructure, renewable energy and catastrophe bonds. This includes the John Laing Infrastructure and Environment Assets funds.”
Architas also opts for inflation and rate rises protection by investing in commercial and “overlooked” residential mortgage-backed securities in the UK and the US through the Insight Libor Plus fund, says Sweeney.