Fidelity’s Global Chief Investment Officers comment on this morning’s General Election results

Fidelity’s Global Chief Investment Officers comment on this morning’s General Election results:

Dominic Rossi, Global CIO of Equities at Fidelity Worldwide Investment:

“Whilst the constitutional issues raised by the election result will cast a shadow over Westminster, markets will be relieved that a likely conservative majority will continue with its fiscal consolidation policies combined with a competitive corporate tax policy. We expect equity markets and the FTSE 100, which surpassed a record high in April, to continue to trend upwards.”

Andrew Wells, Global CIO of Fixed Income at Fidelity Worldwide Investment:

“On the face of it the swing to the conservative party, and the possibility of a majority, albeit slim, will probably be positive for both Sterling and Gilts. However as the dust settles the change in Scotland will have to be closely followed. Whilst the Scottish Nationalists did not campaign on a ticket of devolution, the magnitude of support for them must herald change in the future, and this will cause greater uncertainty. The other danger is that a slim majority, with no significant coalition could always see us back at the polls in a short period of time and markets will be wary of that situation.”

Paras Anand, Head of European Equities at Fidelity Worldwide Investment, comments on the outcome of the general election and implications it may have for equity investors:

• Likely continuation of a conservative-led government will receive a welcome reaction from markets

• With some uncertainty out of the way, markets could become more cautious as the prospect of interest rate rises come into view.

• Fragmented political landscape to remain for extended period

“Overall, the reflexive reaction to the likely continuation of a Conservative-led government albeit with a small majority is likely to be a positive one - business leaders have been visible and vocal about their concern around a change of leadership and a Conservative led coalition will also be viewed as the best political backdrop for the a continuation of the recovery in the economy.  But post the immediate reaction, there is the almost counterintuitive possibility that with some uncertainty out of the way, we could see markets becoming more cautious as the prospect of interest rate rises start to hove into view. Taking a step back and looking at what medium term lessons not only from the outcome of the election but the overall process can be learnt, I would make a number of observations.

The first point to make is that the outcome of the election has confirmed something that we have know for a long time but perhaps not fully accepted which is that a more fragmented political landscape likely to remain with us for an extended period.  The challenge that this represents to investors is new and perhaps why the market has struggled to 'price it in'.  From an investor's perspective, I would see that whilst such a system may challenge very contentious policies being supported other than in very diluted form (good news on the whole), it does leave certain industries more vulnerable to one-off politically driven adjustments than we have been used to seeing over the last twenty years. This is something to which we need to become more attuned to going forward. Industries such as insurance, gaming and financial services have already faced impacts from tighter regulation under the Conservatives.

The second point is whatever outcome of the next days in terms of clarifying the exact shape of the next coalition, an atmosphere of uncertainty will quickly return as the market looks to verify the viability of the leadership and then the likelihood of an in/out referendum on the market. The SNP outcome which has been clearly positive in terms of the election outcome represents that identity politics is on the rise so despite the economic case for remaining within the EU, the referendum may seem to be a closer run thing. This could  have the possibility of reversing the rise that we have seen in sterling on trade weighted basis which (again counterintuitively) is likely to be good news for the market. The international make up of the listed corporate sector in the UK means that this is likely to be a boost at the margin for earnings growth -  in the short term mainly from a translational effect but in the medium term from an improvement in competitive positioning.

One of the most positive points to convey which is certainly underlined by the current strategy of ongoing reductions in departmental spending, we are unlikely to see government sector grow as a percentage of the economy, especially with funding costs heading in the wrong direction. On the whole this should be positive for markets over time as the fact that a growing private sector share in the economy is empirically linked to periods where the market tends to command a higher  multiple.”

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