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Investment managers see opportunity and risk in May’s resignation

Downing-Street-Sign-Politics-UK-700.jpgTheresa May’s announcement from earlier today that she will step down as prime minister on Friday 7 June brought a new direction to deadlocked British political scene.

Yet figures from the investment management sector say her resignation does not spell the end of uncertainty, which has been holding back investment decisions.

Hermes Investment Management chief executive Saker Nusseibeh says: “Sadly, there was an inevitability to this end. We are, however, no nearer to an end of this uncertainty with the fabric of British politics shredded by the emotive debate over the past three years and the balance of negotiating power between the UK and the EU unchanged.”

For some industry figures the announcement is bad news, as a new leader may bring about higher chances for “hard Brexit,” which is seen as a bad outcome across the asset management industry.

Premier Asset Management fund manager Jake Robbins says: “The hope of a compromise and a Brexit deal that kept the UK close to the EU, even with perhaps a custom union to minimise trade disruption, seems to have now dissipated with the departure of Theresa May. With parliament apparently against leaving without a deal, but incapable of agreeing on anything else, then the UK seems to be doomed to remain in limbo for some time to come.”

Earlier this week deVere Group founder and chief executive of Nigel Green said the change in premiership should serve as an opportunity to review investment positioning.

Green said: “The battle for the Conservative leadership and the keys to Number 10 should serve as a wake-up call for investors to review their portfolios to ensure they will remain on track to reach their long-term financial goals – regardless of who enters Downing Street.”

How will stock market respond?

AJ Bell investment director Russ Mould weighted in what impact the change of PM might have on the stock market.

Mould says: “The FTSE All-Share is up today, as investors weigh up the prospect of a new PM and hope for greater domestic political stability. However, history suggests it takes more than a new incumbent in 10 Downing Street to really get the stock market going.

“Since the inception of the FTSE All-Share in 1964, three prime ministers have taken office mid-way through a parliament – James Callaghan and Gordon Brown for Labour, in 1976 and 2007, and John Major for the Conservatives in 1990.

“On average, the FTSE All-Share made no progress at all under the trio during their first 12 months in the hot-seat, rising 2.4 per cent over the first three months of the new PM’s tenure, falling 1.5 per cent over six months and coming in flat over a year.

He adds: “This makes it clear that while political stability is welcome, there are many other factors at work when it comes to how the stock market performs.

“The economy is one but ultimately it is corporate profits and cash flows – and the price (or valuation) investors are prepared to pay to access them – that really dictate how the FTSE All Share will perform.

“With a dividend yield of around 4.5 per cent, the FTSE All-Share can be seen as a 22.5-year duration bond (as this is how long it would take investors to get their money back, assuming no change in dividends or share prices).

“This shows exactly why shares should be treated as a (very) long-term investment and why the role of short-term politics should not be over-emphasised, as very few PMs have lasted for much more than one full term of office, at least since the inception of the FTSE All-Share in 1964.”

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