The April announcement of a snap election by Theresa May caused an unexpected rise in the value of the pound, which reached a five-month high of $1.2729.
Some market commentators, such as AJ Bell investment director Russ Mould, believe that a boost to real estate investment trusts and real estate investment services sectors is likely to follow. Speaking to Mortgage Strategy, Mould commented: “There is a risk that a sudden jump in sterling dampens overseas interest in British assets, but the UK still offers a rule of law and an independent central bank while a strong – or at least more stable – currency could reaffirm the long-term appeal of UK commercial property to potential buyers.”
By contrast, the rise in the value of the pound has caused pressure on the stock market. Speaking to The Independent, Architas investment director Adrian Lowcock observed: “Given that the FTSE 100 is trading close to all-time highs and we are seeing an increase in geo-political uncertainty investors should prepare for increased volatility over the coming weeks and hold a diversified portfolio of equities and bonds as well as property and gold. Having some cash set aside at times of uncertainty will give investors the flexibility to act as more information becomes known.”
While some analysts believe that political events can be largely ignored when building investment portfolios, it seems likely that many investors will move to safer assets, or at the very least diversify their portfolios.
Justin Urquhart Stewart, co-founder of Seven Investment Management, told The Independent that: “For investors, the course of this election will only underline the need for broad diversification across asset classes and currencies. Good investment is about managing the risks of the unexpected, and here is a great example.”
Some argue that the anticipated Tory landslide on 8 June is likely to provide some much-needed political certainty and provide Theresa May with a stronger mandate when conducting her Brexit strategy. Deutsche Bank’s George Saravelos told the FT that the election announcement was a “game-changer for both the UK’s Brexit negotiations and sterling.”
As the FT noted however, a softer Brexit strategy is far from guaranteed: “The Tories could end up being a more hardline Brexit part in the Commons by losing moderate MPs to the Liberal Democrats in the south and winning seats from Labour in Eurosceptic constituencies in the north.”
Foreign direct investment reached a record high of £110,946 million in the last quarter of 2016, largely thanks to the drop in the value of the pound. Despite recent political uncertainties and fluctuations in sterling however, in the longer term it seems likely that investors will continue to place their capital in UK real estate to obtain much-desired certainty.