Santa rally or election elation? The UK stockmarket posted its biggest gains for more than three years in the week following Boris Johnson’s landslide election victory on 12 December, despite a simultaneous jump in the value of sterling that might have been expected to hit large firms with hefty international earnings.
The FTSE 100 has gained over 2% since the market opened (as of 10am), suggesting that the UK is gradually moving back into favour.
While the main UK index saw relatively decent gains on Friday on the back of the Conservative Party securing a majority, it was outstripped by the performance of the FTSE 250.
The reaction from markets to the landslide victory for the Conservative Party has been broadly favourable for two reasons: the risk of a Corbyn-led Labour government has disappeared, while the strength of the Tories in Parliament now gives more clarity around Brexit. The Conservative Party have won 364 seats (with one seat left to declare at time of writing), giving them an estimated majority of 78, their largest since 1987.
Since June 2016 the uncertainty surrounding Brexit has weakened the pound and turned the UK stock market into an uncertain place for investors. Over this period the FTSE 100 index has lagged the MSCI World index by 2.1% a year and experienced around 10% more volatility.
The UK stock market is “on sale” and could enjoy a bounce if the Conservative Party win a majority at the upcoming general election, argues Mark Slater, manager of the Slater Income, Slater Growth and Slater Recovery funds.
For the past three years, readers of the financial press will have heard countless times that the UK stock market is ‘cheap’. Investors fearing the worst outcome from Brexit, as well as the potential of a Labour government coming to power, have turned their backs on UK shares, pushing the market to supposedly attractive valuations for the more contrarian-minded. This is certainly the view of Richard Staveley, a fund manager at Gresham House Strategies.
Many football fans of a certain age will remember the ‘knee-trembling’ experience of heading down to the Old Den, Millwall’s former football ground. My first experience there was shortly before they closed it down to move to the slightly less terrifying New Den to watch my team, Watford, suffer a characteristic hammering in February 1993. Walking up the suitably named Cold Blow Lane to the away end, and hearing the famous “No one likes us, we don’t care” from the Millwall faithful, will last long in the memory. The football was less memorable.
There is intense debate among our asset allocation panellists and the teams who support them, about the dangers of a global recession next year. Schroders’ Keith Wade has likened the world economy to a wobbly bike where growth momentum has become so weak that any bump in the road could topple it – if not next year, then in 2021.
Between the end of May and the start of October, our long-term growth fund portfolio returned a respectable 5.5%. “That performance is reasonably pleasing,” says the portfolio’s manager, Mike Deverell at Equilibrium. “Most things in there made some money. Of course, some didn’t, and unsurprisingly those were UK assets. But everything else went up.”
Last Thursday’s announcement that the prime ministers of the UK and Ireland had found a potential “pathway” to a Brexit deal was a big surprise.