We really liked a post we received via email from one of our favourite managers, Troy Asset Management, about the snap general election. It’s a bit too long to repost in its entirety but here as an extract.
From the toppling of a Prime Minister and flash crashes in the pound, all the way down to the callous downsizing of our nation’s Toblerone bars, the UK’s historic Leave vote from the EU continues to run more like a suspense-filled thriller than a political motion to leave the single market. In the latest twist to the story, Prime Minister Theresa May announced recently that she would ‘reluctantly’ hold a snap General Election on 8th June 2017 to reaffirm the strong and stable leadership of her party, during such a moment of enormous national significance.
May is clearly gunning for a landslide vote of confidence from the UK electorate to remind parliament, essentially, whose boss. With recent polls suggesting the conservative party have the largest lead of any government dating back to the 1980’s, it appears that May is striking when the iron is at its hottest. At present, the Tories have a 12 seat working majority in the commons. Polling indicates that calling a snap election right now, is likely to see this figure move towards the region of 100 seats. The move has all the hallmarks of a good old power play
Across the Channel, the first round of voting in the French election saw centralist and pro-EU candidate, Emmanuel Macron, coming out on top with 23.9% of the national vote. Far right leader, Marine Le Pen, came in second with 21.4% of the vote. Polls for the second round have put more than a 60% probability of centre candidate Macron coming out victorious. Whilst France and the UK will rejoice in not having a radical on the French political throne, this should cause concern amongst the Brexit delegation limbering up in the wings. Macron is staunchly pro-EU and will not pull his punches when the UK searches for a soft Brexit – they’re going to need all the bargaining power they can muster! To do that, the Prime Minister is taking a leap of faith with the UK people to give her permission to get her house in order
As with most political moves, they have the tendency to dislocate themselves from actual stock market returns. Markets will be looking less at the election outcome which looks very pro-Conservative, and more at what the Conservative government will do with the added level of influence in parliament. Over the short term, volatility will continue to play out in the currency markets. Longer term, a big win could see a softer set of goals for the UK Brexit delegation and a more accommodative stance from the UK could shift sentiment positively for UK equities.
In the words of Oscar Wilde – “The suspense is terrible. I hope it will last.”