Old Mutual Global Investors chief executive Richard Buxton says the young have made their voice heard “against soaring student indebtedness and a dysfunctional housing market” and says despite immediate uncertainty there remains reasons for optimism.
Reflecting on the UK’s shock election result of a hung parliament as voters swung towards Labour, the fund manager says he is positive on natural resources and housebuilders, but has some concerns on energy.
Despite the uncertainty connected to a hung parliament, Buxton says there is now a waning prospect of a hard Brexit or ‘no deal’ alongside.
Buxton says headline results may be masking the real forces behind the outcome.
“As initial polling analysis is starting to show, the young voted overwhelmingly for Labour, while older generations voted for Mrs May’s Conservatives.”
“In other words, this was a vote by the young against soaring student indebtedness and a dysfunctional housing market. The young were Remainers, and the old were Brexiteers. This was the moment when the young finally found their voice.
“For those who have never experienced 1970s-style inflation and unfunded giveaways, the message of Jeremy Corbyn’s Labour Party proved irresistible.”
Austerity-type policies are likely to be voted down, Buxton says, and investor hopes for reductions in the rate of corporation tax will surely be dashed.
Buxton reminds investors to look beyond politics.
“It is important to remember that the events unfolding on British television screens and social media feeds are taking place against a backdrop of accelerating global trade.
The FTSE’s natural resources businesses will be the key beneficiaries of this trend, Buxton says.
“At a sector level, we remain relatively optimistic on the prospects for the listed housebuilders. The most significant potential impediment to the sector’s continued progress had appeared to be a discontinuation of the Help-to-Buy scheme, of which there was no mention in the Conservative manifesto. As we enter an era of increasing anti-austerity, the scheme’s survival prospects may now improve.
“Conversely, the environment for energy suppliers and other utilities seems almost certain to become increasingly unattractive, given the political capital those on both sides of the divide believed they could make out of the topic of domestic energy costs.
“For bank stocks, it is likely to be a question of hope being, once again, deferred until market interest rates begin a gentle ascent towards something approaching more normalised, pre-financial crisis levels.
“To some degree, this will depend on whether the US central bank, the Federal Reserve, follows through with its earlier policy and hikes interest rates, and the extent to which President Trump continues to be frustrated in his efforts to make reforms.”
Whoever becomes the next prime minister enters Brexit negotiations with a weaker hand, says Buxton, meaning a much greater likelihood that the UK will find itself having to settle greater dues to the European Union.
“If this cloud has a silver lining, it is that the EU may, in such circumstances, take a more benevolent stance.”
“These declines in the value of sterling were less extreme than some forecasters had predicted, quite possibly reflecting the market’s perception that an extreme form of Brexit is increasingly unlikely.”
“The threat of a cliff-edge ‘no-deal’ Brexit waning, there may just be some cause for optimism that risk appetite will make a return. Although a period of uncertainty will not be welcomed by the market, any further signs of a “softer” Brexit, combined with the tailwind of still-improving global demand, could bode surprisingly well for UK companies.