Q&A: Brexit election time

On the election…

Lord Waldegrave: “This is a single issue election. That is a dangerous strategy but I think it’s the only one available to the Prime Minister. If we look at the polls, though for many years Europe was not very high on the list of concerns for the country, Brexit is now right at the top. So the slogan ‘Get Brexit done’ will resonate I think.

“The problem for Boris Johnson and everyone involved in the election is that, if the country does accept this as an election principally about Brexit, the question becomes: which side splits most? For example, if the Brexit Party were to put up a lot of candidates, particularly in the Labour-held seats, they could easily stop Labour from winning those seats by dividing the Brexit vote.”

Lilian Chovin: “Despite current polls, which indicate a strong Conservative lead, we feel it is an extremely difficult election to call. Whatever the outcome, we will still likely talk about Brexit in the coming months, whether it is about the negotiation of the trade relationship or a new referendum. Brexit uncertainty is not over.”

On opportunities for investors…

Lilian Chovin: “What is critical for our portfolios is what is happening with global economies. And while we have been in a pretty much synchronised slowdown since the middle of 2018, we are now seeing tentative signs of a stabilisation in countries that are known to lead the business cycle, namely China and Taiwan.

“In addition to that, our research indicates that the risk of having a US recession is very low in the short term. This is explained by the resilience of the consumer sector there, supported by strong wage growth and a healthy housing market.

“This is not to say there isn’t any downside risk, but we see two developments as particularly interesting when combined with this stabilisation.

“The first one is the support from central banks, the US Federal Reserve but also the European Central Bank. We know looser financial conditions typically lead to stronger economic momentum. The second element is a potential pause in the trade conflict between China and the US. When you look at recent business surveys, pretty much anywhere in the world, tariffs and trade war always stand out as the biggest risks companies are facing.

“A pause in the trade war, coupled with support from central banks, could be decisive in turning stabilisation into an actual pick-up and more positive economic momentum going forward.”

On our portfolios and funds…

Monique Wong: “We don’t position our portfolios for binary events. We haven’t run out and put on a position to trade the Christmas election. What we do is identify opportunities where these events cause stress or dislocation. Here, the Brexit journey has provided us with a couple. One, sterling valuations are cheap on a long-term view and our UK portfolios are carrying around a 10% higher sterling weight than at the time of the referendum.

“We also have a tilt within our UK equity allocations to mid-cap and domestic stocks, which have enjoyed a good, higher earnings growth profile, especially mid-cap stocks.

“If I take a step back from the UK, our portfolios are diversified internationally by region. At the top level, we are a bit more positive on equities than we were three months ago, and have increased our equity allocation. However, we are not overly tilted toward risk assets.

“As we don’t see an imminent recession, it’s worth remembering that the big years in stock markets tend to occur in the run-up to a recession, and the period coming out of one."