Trading Updates 13/12/2019
The strong showing by the Conservatives in the general election suggests political stability and much improved visibility over policy going forward. This is being welcomed wholeheartedly by equity and currency investors this morning.
The outcome is helpful to our investment positioning, where we have hedged some of our Sterling currency risk, do not hold long dated gilts (which are selling off) and we are seeing modest out-performance of our UK equity portfolio.
However, one shouldn’t lose sight of the fact that the country will be leaving the European Union at the end of January, without a trade deal in place. The transition phase allows for the negotiation of a deal but for a deal to be agreed on the stated Conservative time table, the UK will have to agree to align closely with the EU and to be a rule taker. This is unlikely to be palatable to the new Conservative government.
The more the UK wants to compete with Europe, the higher will be the trade barriers that the EU will erect to protect its internal market. This will lead to tense and protracted negotiations, which are unlikely to be concluded this year. If the Prime Minister follows his manifesto to the letter, this means a hard Brexit outcome at the end of the year.
It remains to be seen whether the large majority of conservative MPs in the House of Commons will be exploited by the Prime Minister to reduce or increase his demands on Europe. This determination will be critical for the path of Sterling going forwards and also for the level of investment that international companies will commit to the UK.
Cornelian Investment Team