May at bay: assessing the impact of the election that went wrong.
The 2017 General Election will be studied and cited for decades. It will serve as an example of how the brutal realities of political warfare punish hubris and indifferent campaigning skills.
But just as Prime Minister Theresa May must soldier on calmly following the shock result of a reduced majority, so too must investors, despite a sharp increase in political uncertainty and accompanying volume of media noise.
Thus far the markets have largely shrugged off the UK election result as another phase of the UK's ongoing identity crisis, without international implications.
More positively, the prospect of deeper confusion may be offset by anticipation of the softer Brexit advocated by many corporates. Investors may calculate that not only might the resulting single market and customs union membership be beneficial to UK businesses, but it might give longer-term support to sterling, now stablising after a sharp post-election fall.
The key question in the aftermath of Mrs May's shock reversal of fortune seems to be how her government's weakness and vulnerability will compromise Britain's negotiating stance on the terms of Brexit, and the Government's eventual ability to cut a mutually acceptable deal.
Given the uncertain position of the opposition Labour Party on those key issues of single market membership and free movement - also the still unknown demands of the Conservatives' new parliamentary allies the DUP - HM Government will at least enter Brexit negotiations on June 19 retaining the element of surprise.
Mrs May's political weakness may or may not enable her (or a successor) to survive until constituency boundary changes improve the Conservatives' electoral prospects by a net gain of up to 30 seats in September 2018. In the meantime her problems could impact on investors' longer term views of the UK for plenty of reasons other than Brexit.
A struggling prime minister is unlikely to push intervention in the utilities market, to tackle reform of welfare state payments or the tax treatment of self-employed, let alone to force the pace of deficit reduction.
Ultimately, despite the widespread fixation on the implications of Brexit, the UK economy's resilience following last year's EU vote signalled that political uncertainty was less directly linked to economic activity than many had assumed. The Conservatives' electoral setback, however disastrous for Mrs May personally, currently looks unlikely to prove otherwise.
Faced with uncertainty in the meantime, Speirs & Jeffrey's view is to remain committed to large international stocks driven by global growth. The OECD predicts that this will improve by 3.5% this year and 3.6% next, while UK economic growth is widely predicted to soften as Brexit uncertainty reigns.
But investors should however bear in mind that offshore markets have performed well. If sterling were to rally for example, either in response to positive Brexit outlook or dollar woes resulting from the political travails of President Trump, a period of underperformance may result. As ever, balance remains key.
12 June 2017