Looming UK general election is a done deal, not quite like Brexit
• Prime minister’s call for a snap election has boosted the pound and UK government bonds
The calling of the UK general election on June 8 certainly brought back memories. I voted for the one and only time in a UK national poll on June 9, back in 1983. Like then, it looks as though the market is going to like the result — in fact, the polls show that Prime Minister Theresa May will get a parliamentary majority of about 140, in line with what Margaret Thatcher achieved then.
It was a good result for the old South African regime in 1983, as Thatcher’s antisanctions stance became more apparent. I can’t imagine May and President Jacob Zuma being ideological soulmates, but at least Brexit could mean that the UK buys more Koo peaches and Douglas Green pinotage as an alternative to European produce.
Many of us have quite a chunk of our pension portfolios in the UK, though many of these shares, such as Unilever and BP, probably earn more than 80% of their profit outside its borders. There is plenty of UK exposure on the JSE, especially in the property sector.
A clear majority in the UK parliament will take away some uncertainty and consumers will start to spend again.
That’s good news for Intu, which runs a portfolio of Sandton City clones across the UK. Feeling newly rich, it might call on the services of wealth managers such as Investec UK and Old Mutual Wealth. The bad news is it is likely to be another excuse for delaying Old Mutual’s so-called managed separation. This is starting to look more and more like a messy divorce, though perhaps not as messy as Brexit.
I hope I will never be told to write a story on the details of Brexit, which would probably bore the actuary who was chosen by his class as the most unimaginative. One of the parties in the Brexit divorce, the EU, once wrote a 400-rule book on handling cabbages. Those who export cabbages to the UK won’t have to worry about this soon.
But Brexit itself remains the big source of uncertainly, not the coming election. May has cynically taken the gap presented by weak opposition (except for the Scottish Nationalists) to ensure a large majority. I don’t expect bookmakers will take a bet on May’s Conservatives winning the polls. There is no chance of a highly disruptive outcome, unlike in neighbouring France, where there might even be a presidential run-off between Marine Le Pen of the National Front and Jean-Luc Melenchon of the Communists.
There are many questions about the effect of the snap UK election that can only be answered by people who live on the spot. So I turned to David Zahn, head of European fixed income at Franklin Templeton, who operates in the centre of London. Bonds are a very accurate indicator of the political mood. Though to many readers bonds sound dull, Zahn in fact works in a market full of intrigue and skullduggery. As much possibly as Paula Zahn.
I tell from their name and good looks that they are related Paula used to read the US national news at CBS on Dan Rather’s day off. Now she is better known for her true crime show On the Case. Some believe the traders and investors in bond and foreign exchange Zahn deals with have more ethics than the criminals featured in Paula’s show. But after the recent forex scandal over here, I am not so sure.
In any case, Zahn believes May has made a shrewd political move, as the expected election victory could strengthen her position at home and on the international stage. It is certainly helping the pound and UK government bonds, still quaintly known as gilts. Zahn also notes that May will be shaping a manifesto that better reflects her own views and can ditch the baggage left to her by predecessor David Cameron — not necessarily Brexit-related, which Zahn believes will be good for UK government finances.
May does not come from the Thatcherite wing of the Tory Party; slash and burn doesn’t come naturally to her. But she has an eye for detail and no doubt will find the savings Zahn and his colleagues in the financial markets are looking for. It must be some good news to have a market-friendly nondisruptive result in the bag.
In a sense, the result is rigged because of the UK’s constituency-based parliament. There are few advantages to the South African electoral system, but one of them is that as soon as a party has the support of less than half the electorate, they can be booted out.
Many believe there is a chance the ANC vote could drop below 50% in 2019 and the government would then change.
In the 1983 election, Thatcher’s share of the vote actually went down from 43.9% to 42.4%, yet her Conservative Party gained 100 seats. May could end with a larger share of the vote than this.
The Liberal Democrats are highly unlikely to get the 25% enjoyed by their counterpart in 1983, the SDP-Liberal Alliance, and Labour may struggle even to achieve even the 27% share it got then.
Labour leader Jeremy Corbyn is considered by many (even in his party) to be an outof-touch left-winger, much like his 1983 counterpart Michael Foot. Under the South African system, of course the combined opposition could have easily formed a government, though there was no love lost between them — an alliance of the DA and EFF here is even less likely.
But the markets undoubtedly like the British system, which makes it very difficult for small parties to get elected, loading the dice in favour of mainstream, middle-of-the-road parties. Financial institutions certainly prefer this to the chaos of the proportional representation system in Italy, for example.
A CLEAR MAJORITY IN THE UK PARLIAMENT WILL TAKE AWAY SOME UNCERTAINTY AND CONSUMERS WILL SPEND AGAIN