Currency and equities worries amid General Election

Uk general electionsWith the polls open to voters at 7am this morning, the UK general election is now underway. The atmosphere is one of uncertainty, with no party clearly leading the field while at the same time, many investors are looking to review their portfolios.

At Barings, Christopher Mahon investment manager and director of asset allocation research, multi asset group, says the election will have more impact in currencies than in the equity markets, comparing the current climate to the impact of the Scottish Independence vote on the pound last year.

“We have for a while had a large USD position in the Baring Multi Asset Fund to balance the risks that sterling would fall as the election drew closer and more people worried about the result,” he says.

“This has, indeed, been the case, and GBP has fallen significantly,” he adds. “Consequently we have already taken some of our profits on this position, and reduced our USD exposure. This has been well timed given that over the past few weeks there has been a sharp increase in the GBP-USD exchange rate.”

Ugo Lancioni, portfolio manager, global fixed income and currency at Neuberger Berman says investors should not forget the bigger picture when considering their sterling exposure.

“We will not have a really clear idea about the UK’s fiscal plan, an important domestic factor for sterling, for days or even weeks after the polls close,” he says. “This makes for high levels of uncertainty in markets but no particular sense of which direction sterling might take once the results are in.”

However, he says the outlook for sterling could be optimistic, particularly if the new government positions the UK to capture opportunities that are coming from a QE-driven recovery on the continent.

He also advises investors to keep a watchful eye out for possibility of a referendum on EU membership, which could become likely in the event of a Conservative-led government, possibly disrupting markets.

James Bateman, head of portfolio management, Fidelity Solutions, says the election poses a number of uncertainties for investors, and the make up of the next government should be considered.

He highlights that a hung Parliament could “spook” UK equity markets, potentially leading to a fall in a relatively quick period, but adds that markets should rally.

“Investors who can hold their nerve through a hung Parliament and increase their exposure to UK markets could be rewarded over the longer term,” he says. “An actively-managed investment approach could be the best way to access these opportunities, leaving the timing and tactical decisions to the experts.”

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