Investment sentiment continued to be dominated by political noise over the past month, with the French Presidential Election and Theresa May’s calling of a snap UK General Election taking over the front-page headlines from Trump and Brexit. The overall effect of the news-flow proved positive for global stockmarkets and the MSCI World index increased by 1.1% in local currency terms.
Following a prolonged period when US politics has been centre stage, all eyes have been on the French election in recent weeks. Investors breathed a sigh of relief following Macron’s victory in the first round of voting and this was ratified when he became President on the 7th of May, receiving two thirds of the vote in the run-off against Marine Le Pen.
However, just when we thought that politics may take a back seat over the summer, Theresa May called a snap General Election for the 8th of June. UK focused areas of the stockmarket rallied on the news with the belief being that a greater majority for the Conservative party may help a more stable negotiation backdrop for Brexit.
The effect on currency movements was highlighted over the month as there was a recovery in sterling, particularly against the weakening dollar. The pound strengthened by over 3% against the dollar and the yen, and 1% against the euro. The effect being negative for UK investors with overseas equity exposure, as the gain of the MSCI World Index translated into a loss of nearly 2% in sterling terms.
Sell In May and Go Away?
It is the time of year for this old adage to be trotted out again and for clients to ask – Should I Stay or Should I Go? Our default position is that we don’t believe that looking at a calendar provides a good way to formulate investment strategy. The chart below details the performance of the UK stockmarket during the period of 1st May to St Leger Day over the past ten years and it shows that whilst investors may have avoided periods of volatility they would also have missed out on periods of material gains.
St Leger Day Return from 1st May
2016 certainly reaffirmed that such short-term market timing is a thankless task. For many it may have seemed to be the perfect year to sell your UK share portfolio in May and hold monies in cash until the fallout from the referendum settleddown. However, had you sold on the 1st May of and reinvested after St Leger day you would have missed out on a remarkable return of just under 10%.
This year, we are sure that the historically high market levels may concern people, given the continued global economic and political uncertainty. However, as cash and bond yields remain at historically low levels the potential return from equities continue to look attractive in our view. Valuations on many measures do not look stretched and maintaining equity weightings seems a sensible strategy for long-term investors. However, whilst UK markets are currently ‘making hay while the sun shines’, it is important to not become complacent. Although we are not advocates of market timing to guess short-term market trends, it is always prudent to take some profit after a period of strong performance. Investors worried about the current market level as an entry point could consider drip feeding monies into the market, whilst we believe that the best way to manage risk is having a well-diversified portfolio across different markets and asset classes.
The above commentary from Whitechurch Securities Limited was first published in May 2017.