At Coutts we don't try to guess election results. In line with our investment principles, we take a measured view of macroeconomiccs and corporate fundamentals to inform our investment decisions
The economic outlook
We see a growing global economy, supported by a robust US, driving demand from producer nations, particularly in the developed world. In the UK, growth remains positive, despite uncertainties around the outcome of Brexit negotiations. The Bank of England policy remains supportive of markets, and rising inflation will moderate as the short-term effect of the fall in sterling works through the system.
We don’t see the UK general election result as having a profound effect on economic growth, either globally or in the UK. All parties have put forward plans which, if successful, could promote economic growth in the UK, but will depend on the final shape of parliament and political will for success.
Continued global growth supports equities and higher yielding credit over lower risk assets, particular government bonds.
UK economic growth remains positive despite uncertainties around Brexit.
The Bank of England policy remains supportive of markets with the rise in inflation moderating as the short-term effect of the fall in sterling works through the system.
We see no reason to change our current base-case scenario: ongoing global economic growth supporting risk assets and safe haven bonds offering low returns
A large majority for the party would strengthen Theresa May's hand when taking a Brexit deal to parliament.
A whole five-year parliamentary term will also allow a transitional period that can run through before the country goes to the polls again in a general election.
The party has struck a more conciliatory tone around Brexit but we do not think that a Labour-negotiated deal would be very different from what the Conservatives would do.
A sizeable Conservative victory is seen as the most likely result and would have limited impact having been largely priced-in by equity markets.
Markets don't like surprises and so a Labour victory could see UK equities dip in the short-term, creating potential buying opportunities.
As investors establish confidence in the government we would expect to see markets return to their current trend.
As with equities, bond markets are expecting a Conservative victory and are unlikely to move much on the result.
Coutts portfolios will remain underweight government and overweight high yield credit and emergng market bonds.
A Labour victory is likely to see bond yields fall (prices rise) as investors could look to safe-havens.
Government bonds are therefore likely to become even more expensive and remain unattractive.
Markets tend to over-estimate default risk in the case of political surprises and the result could bring buying opportunities in corporate credit and high yield.
On the whole, the result would see no significant change in our view.
We don't expect any substantial change in sterling.
We may see a modest rise in the repsonse to the decline in political uncertainty if the Conservatives are returned with a substantial majority.
This would be a surprise for markets based on current sentiment and we would expect to see some short term volatility in the value of sterling in response.
We still believe sterling will normalise over the long term.