Managing Investments in a Politically Volatile Environment

Video: Investments - Managing Investments in a Politically Volatile Environment

Nothing Ruled Out

Political volatility has been a high for a number of years in both the UK and in international markets, and this uncertainty has escalated further in recent months. As Prime Minister, Boris Johnson, has used aggressive tactics in pursuing a revised departure deal from the EU, and with this, the chance of a no-deal departure has increased. Unhappy at this direction, Parliament is increasingly at odds with the Government, with MPs and the PM engaged in manoeuvres. The Government has lost its parliamentary majority, and therefore a General Election seems likely in the coming months, yet, in the meantime, Mr Johnson continues to search for alternative avenues through the current impasse. As such, few Brexit outcomes can be ruled out, at this stage.

Market Reactions

On the whole, market participants view a hard Brexit as damaging to the UK economy and currency markets are the clearest way to see this. Sterling fell heavily following the EU referendum in 2016 and it has experienced renewed falls since Theresa May’s failure to get the Withdrawal Agreement through parliament. Precise currency predictions are extremely difficult to make, but should a no-deal exit occur then we will likely see further falls in the value of the British pound. What this will do to stock markets is more nuanced, however. Stocks focused on the domestic economy have suffered at times when momentum has shifted towards a hard-Brexit, or indeed a no-deal departure, and this trend will likely continue. Stocks with significant overseas earnings, however, have a major cushion in the form of a jump in the value of these earnings when sterling falls. This is why, the FTSE 100, whose constituents, on average, have a high proportion of non-sterling earnings, performed very well following the EU referendum of June 2016. This trend has continued in the three years since and, in our view, should a no-deal occur, looks likely to continue; with internationally focused stocks outperforming domestically orientated companies.

Consider All Factors

Brexit is a key concern for most in the UK, but for investors it should not be the only consideration. A more important factor in the overall direction of markets, both in the UK and globally, is the US/China trade war. Fear in markets has been growing since early 2018 as Donald Trump pushed a policy of protectionism. Escalating tariffs between the US and China have been the main manifestation of this and with each occurrence, stock markets around the world have suffered. De-globalisation, such as we are seeing from this this trade war, has the potential to trigger the next global recession. While we don’t think we are there yet, the situation needs careful monitoring. Political machinations are at the heart of current investment market instability. Predicting the exact outcomes will be extremely difficult and therefore investment portfolios should be carefully monitored, diversified and managed in collaboration with professional financial advice.

Important Information

Please note that the contents are based on the author’s opinion and are not intended as investment advice. This information is aimed at professional advisers and should not be relied upon by any other persons. Any research is for information only, does not constitute financial advice or necessarily reflect the views of the author and is subject to change. It remains the responsibility of the financial adviser to verify the accuracy of the information and assess whether the fund is suitable and appropriate for their customer. Past performance is not a reliable indicator of future performance. The value of investments and the income derived from them can fall as well as rise and investors may get back less than they invested. Important information about the funds can be found in the Supplementary Information Document and NURS-KII Document which are available on our website or on request.

For any information about the Future Money funds please contact the authorised corporate director, Margetts Fund Management Ltd, on 0121 236 2380, or at 1 Sovereign Court, Graham Street, Birmingham B1 3JR.  A copy of their Terms of Business which relates to investments into the funds can also be obtained using these contact details.

Brexit Checklist

We’ve also prepared a handy Brexit preparation checklist for businesses in the hospitality, leisure and tourism.

Your Workforce:

  • Review your Workforce and identify your key employees
  • Ensure all key employees have a competitive benefits package
  • Consider upskilling existing employees to provide cover if someone leaves
  • Consider your shift patterns and the possibility of flexible working patterns to access other demographics for new employees
  • Honestly assess your culture and environment for employees – have you created an attractive place to work for potential employees?

Your Suppliers:

  • Review your key supplier contracts to see whether they need to be updated for wording referring to “EU member state”
  • If you are stockpiling non-perishable/long life goods, ensure your level of insurance is sufficient
  • Continue to review your supplier list and product prices. Ensure you have alternative suppliers for products if there are delays with deliveries or changes to pricing.

Your Guests:

  • Ensure your marketing efforts provide a balance between UK “Staycation” guests and foreign visitors.
  • Review your menu prices according to the effect of tariffs, exchange rate and wages increases.
  • Consider loyalty cards or even vouchers for local customers to encourage mid-week/off season trade – providing a discount to your headline menu prices to bring in the local custom.