The prime minister, Theresa May, surprised many this morning by declaring her intention to move a motion in the houses of parliament calling for a general election on 8 June. If a majority of two-thirds of MPs vote for the snap election, it will go ahead.
This proposal goes against her previous assertions that a general election would not be called until 2020, so what’s changed and how does it affect the investing landscape?
Retesting the resolve of the British people
In a brief speech at the lectern outside 10 Downing Street, Mrs May explained that as the UK moves along the Brexit process “the country is coming together but Westminster is not.”
The prime minister suggests that opposition parties and unelected members of the House of Lords are doing all they can to block and slow down the government’s efforts to move Britain towards leaving the European Union. With a slim majority of around 15, that situation weakens the hand of the government as it embarks on the difficult negotiations ahead with the European Union.
In her speech, Mrs May threw out a challenge to those opposing the Brexit process in Westminster to prove they are serious by voting for this general election. If the election goes ahead, the resolve of the British people to leave the European Union will again be tested, albeit indirectly.
Are shares riskier now?
One way of thinking about this potential early election is that it’s all part of the Brexit process and therefore already known by the market. There could be some short-term volatility in financial markets because of this new development and indeed, the FTSE 100 is down almost 2% today as I write. But my guess is that the stock market will take this event in its stride as the news is digested.
I think that any blip created by an early election will be small and barely noticeable for investors focusing on the longer term. As long as we concentrate on buying shares in firms with good-quality underlying businesses and hold them for the long haul, the ups and downs of the political process should be of minor concern.
I’m not going to panic-sell my carefully chosen shareholdings over this news. And in holding on and ignoring the headlines, I’ll be following in the footsteps of well-known investors such as Warren Buffett and Neil Woodford.
The news that really matters
Rather than reacting to general political news flow, it is often best to keep tabs on the news coming from the businesses that we hold or want to buy. One-time US Fidelity fund manager Peter Lynch once said: “The key to making money in stocks is not to get scared out of them.”
As long as individual company news flow suggests that a firm’s underlying fundamentals remain sound, there’s often no reason to expect a material change in the outlook, even in the face of the ongoing Brexit process.
