U.K. Election Adds More Geopolitical Risk For 2017

U.K. Prime Minister Theresa May has called a snap General Election for Thursday June 8 this year - despite promising that there would not be an election until the end of the fixed term in 2020. The political leader said that a General Election was essential to secure more time in which to negotiate the best possible exit from the European Union.

She called for unity in Westminster and political stability. In essence May is looking for a clear and undeniable mandate to execute a “hard Brexit”. She accused the Liberal Democrats, Labour and the Scottish National Party of trying to derail the Brexit negotiations and said that their actions risked the success of her talks with the remaining members of the European Union.

"If we do not hold a general election now their political game-playing will continue, and the negotiations with the European Union will reach their most difficult stage in the run-up to the next scheduled election,” said May, speaking outside of 10 Downing Street today.

"Division in Westminster will risk our ability to make a success of Brexit and it will cause damaging uncertainty and instability to the country. So we need a General Election and we need one now, because we have at this moment a one-off chance to get this done while the European Union agrees its negotiating position and before the detailed talks begin.

"I have only recently and reluctantly come to this conclusion. Since I became Prime Minister I have said that there should be no election until 2020, but now I have concluded that the only way to guarantee certainty and stability for the years ahead is to hold this election and seek your support for the decisions I must take.”

Sterling fell on the news this morning that the Prime Minister would be making an important announcement, but then subsequently rallied as she laid out her plans. The FTSE 100 has fallen around 2% in inter-day trading to 7,197.

Steven Andrew, M&G Multi-asset Manager said that despite the unknown political forecast equity assets remain attractively priced – especially in the context of a robust UK and strengthening global economy.

“With that in mind, we would look to add to our UK equity positions should political-inspired volatility offer material discounts from here,” he said.

Paul Mumford of Cavendish Asset Management said that from a markets point of a view a snap election was welcome news.

“Even without the proposed boundary changes, everything points to the Tories being elected with a substantially increased majority – which will give the Government a firm mandate and put it on steadier, more solid ground as it begins the difficult, complex work of negotiating Brexit,” he said. “This can only reduce uncertainty and the potential for hiccups over the next couple of years, so it's a sensible move.”

But investors should prepare for increased volatility across global markets, as geo-political risk across the globe increases through 2017.

John Taylor, manager of AB Diversified Yield Plus Portfolio, said: “Given the uncertainty in Europe and around the globe investors should consider exposure to bonds that could deliver valuable diversification. A more global approach could help European investors shelter from Europe’s political risks, while also benefiting from differing dynamics in emerging and developed markets.”