As you will no doubt know, Prime Minister Boris Johnson led the Conservatives to victory with a strong majority in the UK’s third general election in less than five years. A clear Conservative majority was always likely to be the most stock market-friendly outcome and we anticipate this will provide positive sentiment for UK shares and for Sterling.
This encouraging outcome for UK shares may be accompanied by stronger growth and inflation expectations, which could lift interest rates. This scenario would be worse for UK Government bonds which may also see an increase in supply as the government seeks to borrow to meet its election promises. Accordingly, corporate bonds may outperform government bonds as they are less sensitive to interest rate movements and more closely aligned with the fortunes of shares.
Risks such as US-China trade tensions and the ongoing Brexit saga have shown that markets can become turbulent quickly. However, global markets have also surged today as President Trump offered to scrap tariffs on Chinese goods that are set to go live this Sunday.
In the short term, the UK may continue to make good progress but there are challenges ahead for Prime Minister Johnson, with the ongoing Brexit negotiations with the EU and the US-China trade war may just be experiencing a temporary truce. However, we retain a diversified stance and a watchful eye on markets.
Past performance is not a guide to future returns. Investments and the income from them can fall as well as rise and investors may get back less than they originally invested.
