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European Parliamentary election: what do the results mean for your investments? 


History was made last week, as Nigel Farage’s Brexit Party – at no more than six weeks old – won the 2019 European Parliamentary election. 

The Eurosceptic party’s victory means that, having been off the table since March, the prospect of a hard Brexit is now firmly back on the table.

The imminent departure of Prime Minister Theresa May from Downing Street has also raised the potential for a further shake-up in the event of a UK general election.

The Brexit Party was victorious in last week's European parliamentary election, taking 31.6 per cent of the vote. Meanwhile, the Conservatives suffered its worst defeat in history, dropping to fifth place

The Brexit Party was victorious in last week’s European parliamentary election, taking 31.6 per cent of the vote. Meanwhile, the Conservatives suffered its worst defeat in history, dropping to fifth place

Britain was not alone in its rejection of mainstream politicians in last week’s European elections. 

The far-right Italy’s League also made gains, while centrist parties such as the European People’s Party and the Progressive Alliance of Socialists and Democrats appear to have lost hold on their coalition position, showing populism is very much on the agenda at the moment.

Politics aside, the European economy remains weak. German price manufacturing indices showed manufacturing was uncharacteristically low while broader European figures were little better. 

But what does all this mean for UK investors? Do those who hold stocks in this country and in European markets face yet more volatility and uncertainty? 

Is the best policy to hold your nerve or sell before things get worse? 

We asked Darius McDermott, managing director at FundCalibre, to explain what the latest developments mean for your investments. 

McDermott said many see last week's results as a 'barometer of sentiment, rather than a prediction of future voting'

McDermott said many see last week’s results as a ‘barometer of sentiment, rather than a prediction of future voting’

Last weekend’s European Parliamentary elections were not good for the main political parties in the UK. As Labour lost votes and the Greens pushed the Tories into fifth – the worst showing in a national election for the Conservatives in history – Nigel Farage’s Brexit Party claimed victory, closely followed by the Lib Dems.

Meanwhile, across the continent, the SDP and EPP lost their majorities for the first time ever. 

The European Parliament, like so many other things in the world today, seems further fragmented. However, in contrast to the UK, the continent’s electorate seems still to be more pro-Euro than anti.

The European Parliamentary elections, however, are not national elections. As a consequence, voters have tended, in the past, to use them to vent their frustrations at their ‘usual’ parties: they can have a stronger voice on issues, without necessarily letting in the opposition at home. 

So many see last weekend’s elections as a barometer of sentiment, rather than a prediction of future voting. There is time for the main parties to address the worries of their members – if they have the will.

But what does it all mean for investments?

I’ve been in this industry for more than 20 years now and I cannot remember a single other time when currency has been so important when it comes to our investments. 

Usually we say not to worry too much: currency moves are usually small, hard to second guess and normally iron themselves out over time. However, since the EU referendum in 2016, currency has played a huge part in returns for UK investors.

When the pound falls, it gives a boost to our larger, dollar and euro earning companies, most of which are in the Ftse 100. Their profits go up and their costs go down. When the pound rises in value, the opposite occurs.

That said, the pound didn’t move that much this week – probably because the results in the UK were not really a shock: the Tories and Labour were expected to lose out.

With a general election gaining in probability, however, our currency could be facing a few volatile months: rallying on any ‘good news’ and falling on ‘bad’.

The 10-year UK government bond yield has also dipped below 1 per cent for the first time since 2017. This is significant because government bond yields tend to fall when economic growth and/or inflation is expected to slow. Should we be facing a hard Brexit or a change of government, this is the expected outcome.

In this environment, diversifying your investments, so you hold overseas equities as well as UK equities, would seem a good idea. 

Funds we like include Lazard Global Equity Franchise, which invests in industry leaders from all over the world and avoids companies that are reliant on the health of an individual economy, and Fidelity Global Special Situations, which invests in companies either going through corporate change, those that are exceptional value or unique businesses with dominant positions in their industries.

For those wanting to stick closer to home, a UK equity fund that invests in companies of all sizes and that produces a dividend may be an option. This is because smaller companies react differently from larger companies, and any income earned will help cushion an investment should the stock market fall. 

I like Royal London UK Equity Income that has a yield of 4.2 per cent, according to FE Analytics, and is designed to work in all market conditions. 

I also like the relatively new GAM UK Equity Income, which has a yield of 3.95 per cent and can also invest a small amount in European companies or even a company’s bonds if the manager thinks they offer better opportunities.

Europe has its challenges

Speaking of Europe, it also has its challenges: not least in Italy and Germany where both economies have been briefly in, or flirting with, recession. As a continent, Europe is quite dependent on global trade so any slowdown, from the likes of China, could impact on European businesses.

Another worry is what happens if or when a resolution is found over trade wars between China and the US. Will President Trump turn his eye to Europe and start talking about placing tariffs on the automobile sector?

Despite recent woes, stock markets are still in positive territory with both the Ftse All-Share and Msci Europe ex-UK up year-to-date

Despite recent woes, stock markets are still in positive territory with both the Ftse All-Share and Msci Europe ex-UK up year-to-date

However, buying European companies does not necessarily mean buying Europe: it’s just that selectivity will be key.

An example of a fund I like that fits this bill is Janus Henderson European Selected Opportunities. The manager has global brands such as Novartis, Carlsberg and Nestle among his largest holdings.

GAM Star Continental European Equity fund is another high conviction fund with exposure to a number of global brands.

The uncertainties we face in terms of Brexit are likely to persist for some time. As Rathbones’ Julian Chillingworth said recently: ‘No-one can predict the future and no-one has ever left the EU before.’

But despite the woes, stock markets are still in positive territory this year: the Ftse All-Share is up 10.5 per cent and the Msci Europe ex UK is up 11.7 per cent.

Let’s just hope that, unlike the European song contest earlier this month, the UK doesn’t suffer further deducted points after the fact.



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