It's difficult to try and sidestep the election given the saturation coverage in the media at the moment, but one thing we should not be doing is worrying that the result could diminish asset valuations significantly. While both sides will interpret their own way last week's data showing the UK grew a sluggish 0.3% in the first quarter (a continuation of a fragile recovery that Labour would ruin, according to the Conservatives; a demonstration that the recovery is petering out, according to Labour), their ability as politicians to affect the economy, markets and investments is often overstated.

One of the first things to note is that there is just a sliver of difference between the two main parties when it comes to the economy and how to manage the UK's budget. That difference is around the speed of deficit reduction rather than anything more fundamental, with Labour marginally more in favour of increased short-term spending. Although Chancellor George Osborne said at the time of the budget that he planned to move the UK into surplus by 2019, we've said before we believe this target is based on overly optimistic economic forecasts. So in effect both parties support fiscal prudence, but both are relatively vague about how they plan to get there.

However, even if there was a significant difference between the two parties, the ability of the UK government to control its own economy and investments in UK Inc. is pretty limited. Let's not forget that the maelstrom of the global financial crisis in 2008 did not start in Britain but had its genesis in the collapse of the US sub-prime market, yet it enveloped us all the same. Likewise, while many politicians in Britain would rather forget this, our fortunes are very much tied to the rest of Europe, with more than 50% of our trade going across the channel. Europe itself is a perfect example of the disconnect between asset value and economic promise – we know that its recovery has stalled over the past year (it now seems to be reinvigorated after the injection of quantitative easing by the European Central Bank) and yet, as we have long pointed out, this made no difference in terms of the value to be found in European shares.

Which brings us nicely to our final point; even if UK markets decline in reaction to the election result, our exposure is very limited given our global outlook. In fact, we have been significantly underweight many UK securities for some time for a variety of reasons; we've been negative on UK gilts (government bonds and a nation's currency are among the few economic securities directly tied to the health of the country) because of the parlous state of UK finances. More recently we have been adding more money to UK shares, but we're not buying them because they are British – the UK market is in fact very much tied in to the global economy. Our main reason is because of the FTSE's heavy weighting in energy companies, which have been overly battered by the declining oil price. In short, in a globalised world, we invest globally, and therefore our exposure to the UK is a mere fraction of our portfolios.

So it's safe to say that the election should not have a very significant effect on the performance of the assets that we look after on behalf of clients. More pertinent is the attitude of the parties to issues such as taxation and pensions, where there are real and significant material differences for our clients. Our financial planning colleagues will have plenty to say on this issue after this election – watch this space.

This content was generated prior to Turcan Connell Asset Management Limited operating as Tcam.



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