On Tuesday 18th April, Prime Minister Theresa May announced there will be a snap general election on 8 June 2017. The reasons behind this decision include wanting stability, strong leadership and a sense of certainty, as the UK leaves the EU. The PM’s controversial announcement has been met with great debate and some opposition, but how will the forthcoming general election affect you and your investments?
On announcement of the general election, the FTSE 100 slumped by 2.5%, which is the biggest drop since last June. In terms of stocks, it is estimated that £46bn was wiped off some of the largest companies in the UK – the “worst day since Brexit”. This was largely caused by the pound, which spiked on Tuesday to a record six-month high against the US dollar ($1.29, an increase of 2.37%), placing great pressure on the UK stock market. The pound also soared against the Euro, hitting a four-month high. In reaction to the soaring pound, Deutsche Bank advised that it will be raising its sterling forecast. The rising pound is due to confidence in the market; the perception that the Government is likely to win the majority leading to a period of political stability. Forex traders are not particularly worried about the June election, but equity investors are wary, mainly due to general geopolitical stress across global stock markets.
Possibly. However, the right approach to the churning political tide in the UK is to ensure you have a robust, long-term financial plan in place when it comes to your investments. Yes, in the short-term, there may be opportunities, but investors are urged to look beyond the political noise and focus on their savings strategies. Short-term trading will incur transaction fees, which may result in losses to the investor if there is a sudden reaction in the market. Of course, all investments have a degree of risk, so it is important that your investment strategy meets your needs and you have a solid financial buffer in place.
Due to the volatility in the market, it is more sensible than ever to diversify. This is a great way to manage risk, so we suggest diversification across different types of investments, by sector and geography. We also recommend new investments are drip-fed into investment markets, to manage your risks of investing when the markets are at a peak. Ultimately, wise investing relies on good risk management.
To conclude, we suggest investors take care and manage risk. Market volatility is set to continue until the UK political landscape becomes clearer after the June election results.