It has been a week of politics in the UK as Conservative Party members have clamoured to throw their names into the ring to become the party’s next leader and therefore the next prime minister.
Some of the weaker candidates, such as Jeremy Hunt and Sajid Javid, have already fallen by the wayside, but some key candidates remain.
Former chancellor Rishi Sunak is already close to the required number of backers to see him through to the last round, while Penny Mordaunt is the likely challenger (although others are still in the running such as Liz Truss who came third in the latest ballot).
While I am not brave enough to say who will win (mainly because I have no idea), Rathbones fund manager David Coombs said his “political nous” suggests that Penny Mordaunt will be the next prime minister with fellow candidate Kemi Badenoch taking over the reins as chief secretary to the Treasury.
This, of course, assumes that the Labour Party doesn’t immediately argue for a general election, which could throw the situation into even more doubt.
Investors are no doubt interested in the implications of what a change in regime may bring. Earlier this week Invesco analysts said that it matters not and that the UK will underperform for the next few years regardless of who is in charge.
Ben Russon, portfolio manager in Martin Currie’s UK equity team, said this week that the key for investors to look for is the difference in fiscal policy. Sunak for example has been very keen on tax cuts, although not all candidates agree.
“Ideologically the Conservative Party has already been wrestling with the need to spend on health, defence, levelling up etc versus the desire to be a low-tax political movement. There are several important fiscal decisions to be made, not least being whether to proceed with the imminent rise in corporation tax,” he said.
“Coupled with the ongoing conflict regarding our trading relationship with Europe, a new prime minister and his/her team have some big calls to make.”
However, while investors may try to anticipate the result, then what policies the new leader will stick with and then finally the outcome this may have on markets, for most this is not a viable strategy. My crystal 8 ball may be good but it can’t answer all of those questions at the same time.
Stuart Clark, portfolio manager at Quilter Investors, reminded investors that around every political event there is short-term noise, but that the best strategy (even if it is the potentially least interesting) is to look through to the next five-to-10 years – or however long your timeframe is.
However, this does not mean completely sitting on your hands, but looking for those assets that have been “unfairly punished” by the short-term news.
“Volatility will come and can be unsettling but keeping your eyes on the long term will allow you to view that volatility as an opportunity. Whether those opportunities present themselves in this situation remain to be seen, however, as there is a long way to go until the latest political saga has played out,” he said.