UK Government in Turmoil
So here we are at the end of another shock and surprise political event for the United Kingdom. In the biggest political gamble of the year, Theresa Mays Conservative party pushed for a general election in the hope of winning seats from the left-wing Labour party, headed by the socialist-leaning Jeremy Corbyn.
However, that plan has backfired spectacularly, leaving the Conservatives with 11 fewer parliamentary seats, and Labour having gained 29, in a night which Mrs May and her party will likely wish had never happened.
The outcome of all this is unknown, although it was widely acknowledged that a strengthened Conservative government would have had the power to introduce a number of unpopular austerity measures, such as reductions in state handouts to those on lower wages, in a bid to reduce the country’s colossal debt figures (currently standing at an eye-watering 89% of GDP).
On the other hand, the left-wing Labour party are promising to increase levels of social care to the poorer elements of the population, at the expense of extra tax charges to wealthier citizens, along with increased taxes for corporations.
The Pound is Down but Stocks are Up
The markets have already shown their take on an empowered Labour party by devaluing the value of the pound against the Euro and the US Dollar in light of the economic uncertainty that a Labour government would bring. Many investors will be feeling very worried about the future right now.
This turn of events will likely make some investors start panicking and begin moving money out of the stock market and into ‘safer’ investments, in a swirl and panic and confusion. But should it?
In the short-term, the UK will still have a Conservative-led government, although possibly one which has had to align with another political party in order to maintain power. But in the long-term, the political upset will in all likelihood merely manifest itself as a bump in the generally slow and steady upwards movements of the FTSE index.
One likely side-effect of a disrupted UK government will be a weaker hand at the negotiating table when the time comes for the UK to discuss terms regarding Brexit. As Theresa May has repeated continually throughout the past few months, “no deal is better than a bad deal”, and a coalition government would instead likely seek a bland dishwater deal that tries to satisfy all the wishes of the combined UK parties, rather than placing a single firm hand on the EU table.
Business as Usual for UK Business
Regardless of this though, for many companies in the UK, it will simply be business as usual over the following weeks and months, with many other external factors influencing profit and loss over-and-above short-term political upsets. In fact, if we look at the FTSE 100 then we soon come to realise that the majority of the profits from these companies originates from outside the UK anyway. So regardless of any home-spun political turmoil, many companies will still be buying and selling globally, especially to our European and North American cousins, thanks to the devalued pound.
Indeed, the current political situation in the UK can be seen as a buying opportunity for UK investors. It’s widely known that traders panic at the first sign of uncertainty, and will sell perfectly good stocks purely based on potential short-term shocks. However, the UK economy is strong, and many companies will ride the tide of politics without even giving consideration to what the media is portraying as the over-blown ‘beginning of the end’.
Undoubtedly, markets will recover, and in a few months time, today’s events will be mostly forgotten about. With this in mind, those stocks that have fallen in price due to election fever will likely be back to where they were within a few weeks, giving you the potential to make some profit from the panic of others.
It can also be argued that there are much more important global political events to consider, which have the potential to be far more damaging to your wealth than the results of a UK general election.
Keep Calm and Carry On
We are currently faced with an increasing military threat from North Korea, who are loudly voicing their plans to construct inter-continental missiles. We have a US president who has withdrawn from the Paris agreement on climate change, in stark contrast to the beliefs and concerns of the rest of the planet. We have rising terrorist attacks on our own doorstep, and a never-ending war in Syria which is leading to unprecedented numbers of asylum seekers entering our own borders. In this age of madness it’s certainly difficult to ignore the noise and continue investing in the stock-markets, instead of dumping everything into gold and bonds.
But, as an investor, it’s important to keep the focus on your long-term strategy and try to forget about the short-term noise. Many companies have been around for decades and have seen governments of all persuasions come and go. The advice of FinanceFanatics.com is to be just like those big blue-chip companies. So invest for the long-term, and don’t be tempted to adjust your portfolio just because the media is painting a doomsday picture. As the poster says “Keep calm, and carry on”.