Investment Outlook and Review Summer 2017

19 July 2017

“Strong and Stable”: that was the tag line, that was the pledge, that is what the UK General Election was meant to deliver. Instead, for the second year in a row there are many more questions than answers.

Will the Conservative/Democratic Unionist Party (DUP) coalition survive/succeed? Will there be a future minority Government? Will Theresa May remain as the Conservative Party leader and Prime Minister? Will the Labour Party move even further to the left with Jeremy Corbyn as leader? Will there be another General Election before Brexit negotiations are complete? Will there be another EU referendum? 

These are just some of the British questions that remain unanswered, even now, although many seem unlikely, we will only find out the answers in the coming months. Time is of the essence of course, particularly as Brexit negotiations have formally commenced.

Where the result leaves these negotiations is uncertain. It is unlikely to be completely resolved in the short term; much has been talked about the approach to Brexit and whether it will be hard or soft? Could we see a cliff edge departure at the end of the two-year deadline following the triggering of Article 50? 

A deal is possible to extend the timetable for Brexit, but this is dependent on the agreement of all 27 European Union (EU) members, let alone a coherent approach from a UK Government coalition. Talks with the EU started on 19 June, but the approach the UK will take throughout these talks has been left looking confused following the Election result. 

With no party having an absolute majority, any possible coalition involving the Liberal Democrats or the Scottish Nationalist Party would have most likely have come at the price of another referendum (either EU or Scottish or both!); that however was seen as unpalatable to members of the two main parties. Instead the Conservatives have decided that the smaller DUP is the preferred choice of partner but at what price to the Government’s austerity programme? 

The immediate implication that this result will give impetus to a softer approach, is not so clear; a weaker UK position gives greater power to those Eurosceptic Conservative MPs, and indeed to any with marginal positions. This is further complicated by the need to satisfy the DUP as a coalition partner.

To quote the Godfather Part II ‘Power is nothing without control’ and it is hard to see any political personality wielding power or control at this point in time.

This edition of Investment Outlook and Review covers:

Fixed Income | U.S.A. | United Kingdom | Continental Europe | Japan | Asia ex Japan & Emerging Markets | Conclusion

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