Boris Johnson Is No Party for Financial Markets

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Trading around a no-confidence motion suggests investors may prefer a chaotic leadership race rather than the uncertainty generated by the current UK government

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Such a close result calls into question the authority of the prime minister: his predecessor resigned six months after winning such a vote by a wide margin. Mr Johnson could struggle to move through with his policies, such as the looming crisis of Britain’s economy. While his Treasury chief launched a package to support household income just two weeks ago, more may be needed in the winter.

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Are markets reckless to ignore or even embrace the outbreak of political instability in the UK? They probably don’t see much to lose.

Over the past decade, equities in the country have delivered nearly 100% returns, compared to 280% and 150% in the US and Eurozone respectively, due in large part to the country’s decision to leave the European Union in 2016. Investors who did not hedge currency risk did even worse, as sterling has fallen about 10% against the dollar and 5% against the euro during the same period.

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There has been a slight uptick in fortunes in the recent past. Bank of America surveys,

Global fund managers are no longer biased against the UK. Last year, US capital targeted some UK corporations that were seen as undervalued, such as retailer Morrisons and aerospace and defense supplier Megit.,

Furthermore, the large presence of UK-listed energy companies and miners, which for years had been a drag on equity performance, has turned into an edge amid commodity-based inflation: while the S&P 500 and Euro Stokes 50 are down more than 10%. . The FTSE 100 is up 3% this year.

British stocks, however, underperformed, bridging the gap in sector weights. Across all industries, companies listed in the UK still trade at large discounts to earnings compared to their US and European peers. This was often not the case before Brexit, or the gap was too small.

Pessimists might say that no matter who is in the government, equity discounts cannot be turned off. Business investment has weakened steadily since 2016. Despite some respite in April, retail-sales figures have been disappointing, and May’s GfK consumer confidence barometer recently hit minus 40—the lowest since records began in 1974.

Yet, arguably, part of the continued poor performance is not at best down to specific trade relations, policies or indiscretion with the cake, but prolonging post-Brexit uncertainty for Mr Johnson. His threats to break the Northern Ireland Protocol have jeopardized the new trade deal with the European Union. The capital investment drought has not been compensated by any comprehensive industrial policy.

Investors shouldn’t expect a potential leadership reshuffle to trigger a magical revaluation of UK stocks. But it could be a start.

John Sindreu [email protected] . Feather

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