So, who saw that coming? On Tuesday 18th April, PM Theresa May suddenly announced a snap general election. It all came as a bit of a surprise, especially given that she’d previously dismissed the idea of having an election until 2020…
Inevitably, the markets quickly panicked, as is their wont when something unexpected happens. But these blips are usually short-lived. So what should investors do?
What was the immediate effect?
It was quite interesting to watch. As initial, non-specific news of a surprise announcement surfaced, the pound took a slight tumble. Was Mrs May about to resign?
However, as the Prime Minister delivered her speech and the election plan was revealed, the pound recovered and then rallied. The pound jumped up by more than 1.5% against the dollar, and was up against the Euro too. That still leaves it lower than it was a year ago, before the Brexit vote, but was a bit of an unanticipated turn of events.
In contrast, the FTSE 100 dropped by 2.5% and didn’t bounce back in the same way. This isn’t such good news for some investors.
London’s biggest listed companies are dominated by international firms who quickly felt the pinch of the stronger pound. The announcement allegedly wiped £4.6billion off the value of Britain’s 100 biggest companies. Ouch.
What does this all mean for investors?
General elections create uncertainty. The markets don’t generally like uncertainty. And in a time when things were already pretty uncertain, the markets are likely to remain quite volatile over the coming weeks.
Having said that, speculation is that Mrs May called the election because of her party’s present position of strength in the opinion polls. The polls suggest the current government is likely to stay in power. And history suggests the markets prefer a win for the incumbent Prime Minister. A strong majority party should pave the way for some calmer waters amidst all the unsettling Brexit process.
But perhaps we should take what the polls say with a pinch of salt, given what they had to say about the Brexit vote?
We won’t be letting our investment decisions over the coming weeks be swayed by the polls. We’ll be staying focused on long-term savings goals. The biggest risk investors could face is from themselves. If you let the immediate market changes disrupt your long-term financial plans, you may make some decisions which could prove damaging in the longer term.
Markets are likely to calm down again before long (barring any more major announcements…). Our advice? If you can, have a bit of cash set aside so you’ve got the flexibility to act if you see a good opportunity.
But the most important thing is to make sure all your eggs aren’t in one basket. A diversified portfolio that spreads your risk across asset classes and currencies should fare well. Good portfolio management is about managing the risks of the unexpected, and keeping a long-term view. That’s how to ride the waves caused by events like this forthcoming election.
This article is for general use only and is not intended to address your particular requirements. It should not be relied upon in its entirety and shall not be deemed to be or constitute advice. The value of investments may fall as well as rise and you may not get back what you put in.
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