Investors are revising strategies to capitalise on the potential strengthening of the pound (GBP) in the wake of a Labour victory in the UK election on July 4 and increasing political uncertainty in Europe, according to the CEO of one of a leading independent financial advisory and fintech.
A Bloomberg survey on Monday suggested that a win for Labour next month would be good news for the pound. It also follows increasing uncertainties due to a far-right surge in Sunday’s EU Parliamentary elections.
The far-right parties gained notable support, despite the incumbent leader, Ursula von der Leyen claiming a victory, while the results triggered Emmanuel Macron to call for new parliamentary elections in France.
“A Labour victory, with a large majority, after 14 years of Conservative rule, is already priced-in by the markets,” said Nigel Green of deVere Group.
“The expectation that a Labour-led government will create a more stable political environment, be able to make decisive policy moves due to the majority, and improve relations with Europe, is boosting investor confidence in the UK economy,” he said.
“The increasing political volatility in Europe is also likely to be good for the pound. Indeed, the euro dropped to its lowest level against the pound in 22 months after Macron called for elections in France following a humiliating defeat in Europe.”
New era
Green explained that global investors want to make moves to seize what they perceive to be a new era of opportunity for UK assets, including the pound.
“We’re seeing investors taking long positions on sterling in the forex market, anticipating that the pound will appreciate. Also, a renewed interest in considering UK equities and ETFs that benefit from a strong pound,” the deVere CEO added.
“Sectors like financial services, consumer goods, and tech are likely to see enhanced performance due to increased investor confidence.”
Investing in gilts is increasingly attractive, too, as they offer a safe-haven with potentially favourable yields.
“If the pound strengthens, the value of these bonds is likely to increase for foreign investors,” Green said.
At the end of May sterling hit a two-year high against the euro as financial markets bet that the Bank of England will be forced to keep interest rates at their current level for a little bit longer, for fear of seeming to be political ahead of polling day.
The deVere boss concluded that domestic and international investors are currently seeking to leverage the expected benefits on UK assets of a more stable political and economic environment in the UK, and the opposite of that in Europe.
“We expect this trend to continue as the race for Downing Street gathers pace and the political turbulence in Europe plays out.
“As with all investments, it’s crucial to maintain a balanced approach and be prepared for potential market volatility.”
