02 December, 2019 01:00
UK Election: Salmon or damp squid?
I SPENT a couple of weeks in Japan at the rugby world cup, and over the last year have visited a number of other countries. And without fail, the message coming through loud and clear regarding the UK is: ‘What on earth is going on'?
When you are trying to watch a game with a plate of sushi and a pint of beer, having geopolitical economic conversations is a tad trying.
But that's how it's seen overseas. And no wonder. I'll stay away from the politics for obvious reasons, but that, in some ways, is potentially the problem.
The confirmation bias has led to a polarisation of society and division where no-one seeks to understand first.
There are few pupils, and lots of teachers. ‘My decision will have been proven to be correct' – either way. It's about being right or wrong, rather than what is right or wrong.
The results are there to see. Back in the day (not that long ago), large UK investment funds across the board would have the standard 50-60 per cent invested in UK assets. Today the allocation from one of the better dynamic UK growth funds is a mere 22 per cent. Overseas global funds have also divested.
The reason? With a falling domestic market and a ‘where are we going' economy, overseas investors would lose not only on the stock market falling, but on the currency nosediving as well. That's a double whammy of being allergic to sushi, and one that's been sat in shop window for three days sweating.
The reverse of this is equally as true for a UK manager/investor investing abroad. The obvious choice was the U.S.
With the dual benefit of the upside of the razzmatazz and euphoria of extraordinary tax cuts for corporations, and a perception of ‘we are doing great again' markets soared. Couple this with President Trump's desire to stay a second term and easing off on sanctions to allow markets to become buoyant again (he always talks about it) - hey presto.
To the UK investor investing in the US, it's a double whammy upside of a soaring currency and market, when translated back into a battered sterling. £1 bought $1.58 in June 2015 and slowly dropped off to a $1.46 as the Brexit vote neared. Post Brexit day, it fell off a cliff and reached a bottom of $1.20 before creeping back up again to $1.29 today. That has swollen the savvy investor's investment account.
None of the headlines regarding the UK from overseas have read well, and so there has been little or no inclination for UK, or overseas investors to return. Productivity has all but stagnated over the last decade.
I'm aware of business people unable to pay their rents and doing temporary deals on that account. The research survey by IHS Markit showed horrendous detail in the last quarter of the year pulling headlines of “UK economic activity drops sharply" in September and "Econony remains lifeless” in November.
The result is that UK domestic stock has been as attractive as a smelly fish-licking competition.
Now, will that change? This is, of course, where your attitude to risk comes into play. What morals will voters follow? Will they vote to block/ support Brexit?
The headlines swirl in contradiction with ‘radical left wing socialism' in one column and “economists and academics back Labour spending plans” on the other.
As I said to a good analyst friend: Who do you trust anymore? Maybe that's the strategy?
Do voters really care about disinformation or lies, as long as it's their chap telling them?
That's the bet as far as markets are concerned (leaving aside the wellbeing of mankind and society for this column).
He was delighted when I quoted him before, but as my late father said: “When everyone is running one way, I walk the other”.
Unloved UK domestic stocks such as those held in Artemis UK Select, GLG Undervalued Assets and Polar Capital Value will become much more attractive when skies clear.
However, investing in such, before a clear Brexit/UK election clarity carries significant thought and risk.
Peter McGahan is Chief Executive of Independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority.
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