Political risk is always something investors have to take into account. In the UK it was traditionally an easy call for newspaper columnists – Tory governments are pro business and aligned with the interest of investors; Labour are socialist and so bad news for investors.
Actually, markets are not sensitive as to who is in government, even in the UK, in any direct sense. Markets in the long run reflect economic conditions and in the short run human psychology (which may be influenced by news and published opinion, so is correspondingly susceptible to political events).
Furthermore, a Labour party of the Blairite style was undoubtedly good for many business because it adopted an expansive public spending programme but gave nearly all the work to the private sector. Also, if there are more workers employed and spending money, it really does not matter if they are in the private or public sector: national income will grow.
Why am I delivering this little homile? Because the UK is engaged in a process (Brexit) that has descended into chaos because of the entrenched positions at the edges of the two main parties – the Right of the Tory party and the Left of the Labour party. This descent into chaos is manifestly going to be bad for the country and probably bad for investors in the UK and Europe.
So the emergence of a small group of people who suggest that something more centrist is intelligent could just be good news for investors. In France a change to centrist pro business policies is causing unrest, but they started from a different point. Where your blogger lives a major change to a centrist, mildly green pro technology party has seen solid economic growth and inwards investment.
Of course, we remember the SDP and one of our psychological biases says nothing will come of this independent breakaway group. As an investor, I rather hope it does trigger some modernisation in British politics. We could do with a few less dinosaurs, whether they be from Eton or CND.
You must be logged in to post a comment.