Schroders Quickview: UK election provides welcome stability for business
Schroders Quickview: UK election provides welcome stability for business
The uncertainty around a hung parliament has been removed and the reinstating of a Conservative-led government which is perceived to be more business friendly has propelled the FTSE 100 by 2% within the first hour of trading this morning. The more domestically-focused FTSE250 index is up 3%.
The companies that will benefit
The key beneficiaries of the rise today have been those companies that were impacted by the apparent increasing popularity of the Labour party over recent months.
The threat of a price freeze for UK utility companies Centrica and SSE is clearly now off the agenda which has propelled these shares by 7% and 5% respectively.
UK housebuilders impacted by fears of the mansion tax and less home ownership under a Labour government have also been substantial beneficiaries.
Elsewhere, UK banks and the tobacco sector – which were mentioned as target areas for extra NHS funding – have rebounded, given the assumption that incremental levies are unlikely.
EU referendum on the horizon
Looking ahead, the Conservative manifesto has promised an EU referendum by the end of 2017, which will undoubtedly create some uncertainty going forward but this is unlikely in the short term.
We do not know how significant the threat of a possible “Brexit” really is given David Cameron has not disclosed the messaging around the “in” or “out” campaign. Recent business leader surveys suggest a majority would like to remain within the EU and it seems clear the Europeans themselves would like the UK to remain a significant player in Brussels.
Leaving aside eurosceptic Conservative backbenchers, we hope the economics of Britain’s position in Europe will be the main focus of the referendum debate. We currently run a significant current account deficit with the EU although the financial services sector runs a £19 billion surplus.
Politicians will need to demonstrate they fully understand the implications of remaining within or withdrawing from the EU.
Stability for UK companies
In the short-term it seems clear the election result should provide businesses with a stable political and legislative background in which to invest for the future. We welcome that stability and anticipate the UK economy growing above 2% for the next couple of years which should be beneficial for UK companies, particularly those with a domestic focus.
We remind investors that international influences continue to be extremely important given 75% of revenues are derived overseas for the UK quoted market. We remain optimistic on the broader global economy which has a significant bearing on the companies in which we invest.
Fund manager biography
Rory Bateman joined Schroders in 2008 and is Head of UK and European Equities. His responsibilities now include co-managing Pan European Equity portfolios, and management of the other portfolio managers and European research analysts. Prior to joining Schroders, Rory spent 12 years at Goldman Sachs Asset Management where he was the portfolio manager for Continental European Equities for eight years. In addition, Rory has 12 years of experience as an analyst covering numerous sectors across the European market.
The views and opinions contained herein are those of Rory Bateman, Head of UK & European Equities, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.
Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Exchange rate changes may cause the value of any overseas investments to rise or fall. The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. We accept no responsibility for any errors of fact or opinion and assume no obligation to provide you with any changes to our assumptions or forecasts. Forecasts and assumptions may be affected by external economic or other factors.
The sectors shown above are for illustrative purposes only and are not to be considered a recommendation to buy or sell. This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment Management Ltd (Schroders) does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Issued by Schroder Unit Trusts Limited, 31 Gresham Street, London, EC2V 7QA. Registered Number 4191730 England. Authorised and regulated by the Financial Conduct Authority. For your security, communications may be taped or monitored.
Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. The content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.