Boris Johnson’s huge election win — the biggest for the Conservative Party since 1987 — has huge implications for UK investors. Here’s what Foolish readers most need to know this morning.
Brexit is on
Arguably the biggest consequence of the election outcome is that the Conservative Government can now pursue it’s campaign pledge to ‘Get Brexit Done’ and leave the EU by the end of January.
After so much uncertainty for so long, this outcome has seen sterling soar to its highest level against the dollar in 18 months — good news for UK-focused companies, hence why the FTSE 250 is showing big gains this morning. The rapid rise also has implications for the FTSE 100 given that the vast majority of companies in the top tier generate most of their earnings overseas. The index is still up strongly, but the gains are less pronounced.
Another development is that those companies on Jeremy Cobyn’s wishlist for nationalisation are now safe. These include battered postal service Royal Mail, energy provider Centrica and communications giant BT. No surprise then that these are some of the biggest winners today.
Of course, this relief rally does not necessarily mean that these companies are suddenly worthy of your cash. Royal Mail must address declining letter volumes; Centrica must deal with the rise of nimbler competitors; BT still has its pension deficit. A rising tide lifts all boats temporarily, even those with a few holes.
Other winners worthy of mention include housebuilders such as Persimmon and financial heavyweights such as Lloyds Bank and Barclays, perhaps due to the likelihood of a speedy Budget. In the FTSE 250, investment platform AJ Bell was among the top risers, presumably because people will now be more willing to put their money to work in the stock market.
So it’s safe to invest?
Certainty on Brexit will be welcomed by businesses, even if departing from the EU isn’t what many wanted. From this point of view, Johnson’s win does make life easier for market participants in the short term.
Here at the Fool UK, however, we’re in it for the long term. By this, I mean that we recognise that the political world is in a constant state of flux and trying to predict anything is asking for trouble. The 2016 referendum result surprised many. Few believed Donald Trump would win.
Boris Johnson’s victory will be cheered by those in the City for now, but that’s not to say that the positive momentum we’re witnessing today will continue. One prediction I can reliably make is that investors always find something to worry about.
It’s important to recognise, for example, that our actual departure from the EU is merely the first stage of Brexit and that there are many more hurdles ahead for Boris Johnson to negotiate, all within an extremely tight deadline. A no-deal EU departure still can’t be ruled out. The outlook is clearer but no less difficult.
For this reason, I think it’s best to focus on what research has consistently shown, namely that equities have provided the best returns over time; more so than bonds, property or commodities like gold.
Last night’s result will generate cheers and tears. For Fools, however, the script is the same: buy a diversified bunch of great companies at reasonable prices and learn to sit on your hands.