Jason Stather-Lodge, CEO of OCM Wealth Management
So the Conservative party are forming the next UK Government which is something that the polls, bookies and pretty much every political commentator could not have predicted. Whatever your political stance, on a purely economic level, the result is, in my opinion, great news.
Prior to the election result, markets faced 3 major economicheadwinds: Greece, the UK Election and potential US rate rises, which, it was feared, might all come together and create a hurricane. With at least one of these now dissipated, it could betime to reassess portfolio positioning.
Ahead of the ‘foregone conclusion’ that was to be a hung parliament, we, like many others, had cyclically adjusted away from the UK and into Asia and Europe, whilst holding an overweight position in cash. Regardless of the election result, that decision has largely proved positive and still added value in that it brought volatility lower than if we had done nothing.
The rally today therefore should give us nothing to be concerned about though we intend to carefully monitor the reaction and volatility over the coming weeks. We fully expect a fall back in markets and in sterling as the global focus turns to the issues of Greece and US rates.
Greece is the next issue that is hurtling towards a brick wall, and once we no longer feel Greece poses any immediate risks, we will firstly take off our UK short in our portfolios and then look to finalise the cyclical readjustment and move to a full allocation to Europe. We would, at this point, also look to re-enter the UK markets in mid and small cap stocks.
Strategically, we are bullish on Europe on the back of QE and now the UK on the back of some good political results, especially as the shortage of sovereign bonds for any UK investor will make stocks the only alternative for investors and push markets higher. Likewise, the pickup in growth in Europe recently means that our assumptions of rewards in the European context have moved higher.
So once these short term issues are clarified we expect that “normal” service to resume in our asset allocation, namely the reversal of our short position and also moving gradually out of cash, but this is a good opportunity to also mark out some longer term issues which will need our thought to navigate.
The results from the election in Scotland, pretty much a white wash for the SNP, means that the next key date is May 5 2016, when the Scottish Parliament general election happens. If the result is the same, then we could possibly see another referendum on Scottish sovereignty. Having had a recent experience of this, we all know how both commerce and markets reacted to this. The bigger elephant in the room, however, might well be the commitment from the Conservatives to the European Referendum. With approximately 60 Eurosceptic MPs in his backbenchers, David Cameron has his work cut out to get through this period without collateral damage especially given the recent comments from leading corporates like Prudential if the UK were to leave Europe. It’ll be interesting to see how