Over time, equivalent moves by Labour could benefit the pound.
How should investors position their portfolios?
In the absence of any apparently dramatic changes to spending and taxation, there is at best a weak link between politics and investment outcomes in the short term.
For one thing, the UK economy is not itself a major driver of corporate profits, the ultimate anchor of equity performance, given FTSE 100 companies operate globally.
While Labour’s plans to build 1.5mn new homes over five years could have a big multiplier effect on the economy, given the wave of spending that would be involved, it may take years to see the impact.
Previous government attempts to increase the number of homes also point to the difficulties involved in getting such initiatives off the ground.
Decarbonisation of the economy, if driven successfully by Labour, could help bring about lower and more stable energy costs. This would likely boost discretionary consumer spending, manufacturers’ profits margins and net investment expenditure.
While opportunities may yet arise, investors should not be too swayed by post-election speculation. When Donald Trump became US President and the UK left the EU in 2016, these events were expected to act as significant headwinds for global tech shares and the FTSE 100 respectively. Both now hover at or close to near-time highs.
As others trade on their immediate emotions, long-term investors could simply benefit from staying on course. Frequent trading is, after all, costly.
Markets neither cheered nor jeered upon Labour coming to power. This is consistent with our belief that politics and investment fundamentals are not the same.
Although reduced political uncertainty could help keep UK markets calm, in the long run, a robust, well-diversified portfolio remains essential to weather all storms.
Mike Coop is chief investment officer, EMEA at Morningstar Investment Management
