Investing through political drama

Who needs Netflix for political drama? While Designated Survivor, The Bodyguard and Borgen are binge-watch heaven, you only need to turn on BBC breakfast news at the moment for gripping viewing. We’ve had Russia invading the Ukraine, the United States supreme overturning Roe v Wade. And of course, closer to home, we’ve witnessed scandal after scandal before a parade of cabinet resignations finally resulted in Prime Minister Boris Johnson resigning himself. With such political uncertainty it’s easy to be hesitant and sceptical – especially when it comes to the stock market.

“There are men running governments who shouldn’t be allowed to play with matches.” — Will Rogers, American actor

While there’s no magic formula to know what stocks will do next and there can be any number of factors influencing their fortunes – good and bad – one thing we do know is that, unlike yours truly, markets hate drama. But do stock markets really care who becomes prime minister?

Do stock markets care who becomes prime minister?

When power shifts, policies can, too. But in the case of the UK, Rathbones at least believes that the impact on the UK stock market will be minimal.

In a note to investors this week the company said: “The effect of Johnson’s resignation on the UK market and sterling shouldn’t be overstated. Given the government’s poor polling and the recent by-election defeats, together with the cost-of-living crisis, the Conservatives are highly unlikely to hold a general election until they absolutely have to. So this will be a case of swapping one Conservative leader for another.

“As our previous research has shown, even transitions from right wing to left wing governments have very little discernible impact on financial markets, so an intra-party transition is not something troublesome at the macro level. Also, this isn’t 2019, when the leadership contest was effectively a referendum on a hard or a soft Brexit, and when there was the threat of a far-left Labour leader in the wings.

“The long-term value of the pound is driven by economic fundamentals, such as the relative productivity of our exporters. If the new leader is less ready to break international law, more dubious of unilaterally altering the Northern Irish Protocol, or keener on a constructive relationship with the EU, then this removes a ceiling on the potential appreciation of the pound. But it may not move the dial in the short term when risk-off sentiment and monetary policy are dominant.”

Leaving nothing to chance

While markets may not react to a leadership contest, it can be off-putting for regular investors, who tend to have a home bias in their portfolios. In other words, we take comfort in what we know.

But with cultural references littered throughout the foreign shows we watch, some overseas companies are now familiar too. Not only that, but spreading your investments across different countries gives you both diversity and perhaps peace of mind. So, one option is opting for a global or regional fund.

Funds to consider

T. Rowe Price Asian Opportunities Equity

The manager of this fund invests in companies that tend to be established, with leading market positions and good management teams who prioritise shareholder returns. The portfolio is currently spread across China, India, Taiwan, South Korea, Hong Kong, the Philippines, Singapore, Thailand, the Netherlands, and Indonesia*.

Comgest Growth Europe ex UK

Comgest Growth Europe ex UK is a high conviction fund investing in high-quality, long-term growth European companies head-quartered – or carrying out their predominant activities – in any European country excluding the United Kingdom. France, Switzerland, the Netherlands, Ireland, Denmark, Italy, Spain, Germany, Portugal, and Sweden are all represented in the portfolio**.

GQG Partners Emerging Markets Equity

This is a concentrated portfolio of high-quality companies with durable earnings. The emphasis is on future quality, rather than companies which have simply done well historically. India is the highest country weighting in the fund at the moment, followed by Brazil, China, the US, South Korea, France, Taiwan, the Netherlands, Mexico, and Hong Kong*.

TM Redwheel Global Equity Income

While this fund may be new, the team – led by Nick Clay – is highly experienced, and the investment strategy is well-proven. It has a true contrarian nature backed up by a logical and disciplined philosophy. Positions are currently listed in the US, the UK, Switzerland, France, Korea, Spain, Sweden, Germany, Taiwan, Japan, India, the Netherlands, and Brazil*.

Morgan Stanley Global Brands

The investment team behind this fund has a mantra: ‘don’t lose money’, which will possibly be as comforting to investors as the familiar names that can be found in the portfolio. The team looks for high quality companies with defendable and visible future earnings, allowing them to give attractive returns to shareholders and reinvest in their business to stay ahead. Names in the top ten currently include Microsoft, Visa, and Abbott Laboratories*.

*Source: fund factsheet, 31 May 2022
**Source: fund factsheet, 30 June 2022