The first screening of the low-budget Star Wars spin-off has been aired. The Rebel Alliance in this instance is not as exciting as an interstellar coalition of revolutionary factions. Instead, we had twenty-one Conservative MPs from the Shires who decided to vote against their government’s wishes.
The reviews are in and have been mixed. Words like “humiliating”, “bruised” and “cornered” have been used by one section of the press to describe the Prime Minister’s predicament. Another section calls the Leader of the Opposition a “chicken” and a “hypocrite” for refusing to agree to an election. No prizes for guessing which papers have said what.
More seriously, the events of the past two weeks have had more twists than any scriptwriter would dare to squeeze into a movie. For starters, it was only ten days ago (at the time of writing) that the Queen agreed to prorogue Parliament. Parliament is still to be suspended between the 9 September and 12 October, but this isn’t the big news story anymore.
We were expecting to write about a forthcoming election. Once parliament was prorogued it became clear what the Johnson-Cummings plan was: to out-Farage Nigel Farage. Narrow the scope for debate in parliament, threaten a No-Deal and provoke a response from parliament. And then, you can say you were “thwarted” by the Remain establishment. Brexit Party dealt with, election campaign sorted. Easy!
Parliament followed the plan at first by immediately demanding that the Prime Minister seek an extension to the Brexit deadline up until 31 January 2020. This motion was passed with the help of those twenty-one Tory MPs plus Philip Lee, who moved over to the Lib Dems. For their troubles, those twenty-one have been effectively kicked out of the Conservative Party. This decision by Johnson has ripped through his slim majority in parliament – perhaps to try and ensure that an election would happen. To top things off, Johnson has continued to claim he will not go back to the EU, implying that the only way to implement the law just passed is that we would need a general election before the Brexit deadline.
Everything seemed to be going to plan. Political commentators were blocking out their diaries for 14 October (and so were we). But the government, requiring a two-thirds majority, has failed to get the election they were after. Labour and other opposition parties are claiming that they will only support an election once the Brexit extension bill has become law. So, we shall wait and see.
What should investors do?
Away from the Westminster bubble, the Pound has reacted positively to the likely extension, reaching US$1.235 from a low of US$1.19 a few days ago. From an investment standpoint, this can feel like a worrying time to invest. Our view that parliament would block a No-Deal has come to pass, justifying our overweight to sterling. But a potential general election keeps No Deal on the horizon – it is one thing to try to predict politicians, another to try and predict the electorate.
However, we believe our globally diversified portfolios are well-placed to navigate through the UK turmoil. The 7IM Balanced portfolio has around 30% in foreign currency – in a world where the UK does crash out of the EU, you could do worse than hold US Dollars, Yen and Euros. Additionally, the ‘UK equities’ label is misleading. The ‘UK’ here refers to where the company is listed, rather than the country where it sells its products and services. Around two-thirds of the revenues of large-cap UK equities come from outside of the UK – London-listed global pharma companies, for example, should be okay in a No Deal world.
Of course, this article has a read-by-date on it. A sequel to the movie described above is looming, but the release date is unknown. As is the story arc. There has been speculation about the script: an election is likely to be announced soon, but the date is still anyone’s guess. As is the outcome of the election. The current polls suggest Johnson could get a majority - as they did for Theresa May just before she called an election in 2017. One day the polls will get it right!
We will update further on the election and the investment implications once we know more. Meanwhile, get the popcorn ready. This series is likely to run on and on.