Election impact on investment strategy

[fca2019]

Do you any of you have any plans on changing investments, or addition investments as a result of the election?

I saw an article in the Mail over the weekend, and basically it advised buying gold or defensive stocks if Corbyn gets in, and if Boris wins then should get a rise on the pound and growth in UK stocks (small/mid cap).

I was thinking about adding gold to my portfolio at some point anyway as I am quite defensive minded, so if there is a hung parliament or labour majority could take the opportunity to do this.

Or if there is a conservative majority, invest in the UK fund (Fidelity special situations?) as my equity portfolio is international, as I've only been in the markets a couple of years outside of my pensions.

What is you view? Am I kidding myself trying to time the market? I've tried that before and it didn't work, but I've got a feeling markets are heading for a big swing one way or other on 13 Dec. as the election outcome is so unpredictable.

Please can this thread be without political argument, as I guess there is other places for that, and I'd like to learn on investing specifically.

[scrumpyjack]

I think the markets will swing immediately very rapidly if Corbyn were to win. The pound would fall sharply and that would be reflected in an immediate rise in the price of gold. It will be too late to benefit from it.

Personally I don't think it is worth trying to anticipate what the election might bring. Mr market will already have priced in what Mr market thinks will happen. It is a pure gamble for the PI to rearrange one's portfolio ahead of the outcome.

What may be worth doing , if Corbyn / Libdems form a government is to realise taxable gains pronto as the 20% rate will not last long, and to give assets away as part of IHT planning as gift/death taxes will only go up. There may be a few days to do that after the election and it should be very much worth doing for some people.

[JohnB]

I agree about the markets. You will have longer than a few days to allow for legislation/tax changes. I'd expect an early emergency budget whoever wins, it will just longer for a hung parliament, and while some things might be instant, most will be implemented in the new tax year. I'd not assume that there will be protection for pension LTAs as there was under the Tories, Labour may just force the new limits on everyone.

[Lootman]

What may be worth doing , if Corbyn / Libdems form a government is to realise taxable gains pronto as the 20% rate will not last long, and to give assets away as part of IHT planning as gift/death taxes will only go up. There may be a few days to do that after the election and it should be very much worth doing for some people.

Just "a few days"?

A Corbyn government would be in a mad haste to implement their policies, I'd agree. But preparing a budget and passing it would surely take weeks rather than days.

Also can tax rules change mid-year? I had always assumed, admittedly without thinking about it too much, that the rules for 2019-2020 would stay in place until April. After all taxpayers have made decisions on that basis, including sales of investments. And that the new tax regime would start on 06/04/2020.

What Labour might do very quickly, if only because they have to, is impose restrictions on sending money overseas. Hundreds of billions would vanish within minutes of the election result, as cited in a Guardian article the other day. And Labour might feel that it needs to stop the bleeding, especially if sterling is also collapsing.

In fact that might be the biggest worry - that a crisis caused by Corbyn winning would provide the pretext to take "emergency measures" which of course were not in their manifesto.

As for investments themselves I am already positioned for a Labour victory. My equity allocation to the UK is down around 10% - the lowest it has ever been. So a plummet in my UK shares would be more than outweighed by the rise in value of my overseas holdings as the pound declines.

UK markets will recover, but I won't get the extra tax back that I would have paid. That is where I think investors need to focus.

[scrumpyjack]

It is quite possible for it to be announced virtually immediately that tax changes will apply from the date of the announcement even though it is months until the budget and it has happened before that the rate of CGT has gone up mid year so that different rates applied within the same tax year.

A new Labour government would want to preempt people from making sales at a 20% CGT rate if they are going to introduce taxing them as income and at increased IT rates.

Similarly they might well scrap or cap the pensions 25% TFLS

[fca2019]

Thanks for the responses so far, very interesting.

If there is a Conservative working majority and they get Brexit through, presumably the opposite would be the case?

Pound would go up, and gold down in sterling terms? UK markets would do well, but FTSE100 less so as earnings from overseas?

[PinkDalek]

It is quite possible for it to be announced virtually immediately that tax changes will apply from the date of the announcement even though it is months until the budget and it has happened before that the rate of CGT has gone up mid year ...

It is also a possibility that parts of the tax regime will be changed retrospectively.

This happened, understandably perhaps, with "employee benefit trusts". There are others.

Another probability, albeit not retrospective, would be the reversal of the enacted reduction of the CT rates set to be 17% wef 1 April 2020 (back in 2017 Labour were looking to increase the CT rate to 26%).

[SalvorHardin]

Already done it. Most of my assets are overseas, in foreign companies, international investment trusts and UK based multinationals (which are likely to move their headquarters if Labour gets in and turns out to be as hostile towards property rights as I fear).

This isn't in response to Corbyn, it's been my investment strategy for years.

Regarding CGT, I've already realised sufficient gains to use my allowance and the tiny bit left of the 10% band. Most of my shareholdings are ones that I'm happy to hold for years (I'm not a trader).

Some weeks ago I put £1,000 on a Labour majority government at 20-1 as an insurance policy. I'm hoping to lose this bet!

My backstop is emigrating to Canada

[JohnB]

@fca2019 If the Tories win, I'd expect we get to the end of 2020 with no deal with Europe, as Boris's deal might take us out of the EU, but would then founder on trade deal talks. The pound is likely to be a lot weaker then.

FTSE 100 composition could change if multinationals delist. Index trackers could change a lot even if individual company shares preserve value. The 'market' may not worry, but your strategy could be shot.

Whoever wins, government debt is going to skyrocket, you might want to plan to buy the gilts they'll be selling at favourable terms.

Best thing is to read the manifestos in detail, and see what rumours of profligacy and clawback have become real, and listen to the messages to see which are emphasised. IHT could be interesting, there were rumours that the Tories wanted to remove it, Labour/LibDem to hike it, and its not something you have much control over.

[Howard]

My backstop is emigrating to Canada

Don't drink the water when you get there!

https://www.bbc.co.uk/news/world-us-canada-50293527

Apologies for going OT.

Howard

[Lootman]

Some weeks ago I put £1,000 on a Labour majority government at 20-1 as an insurance policy. I'm hoping to lose this bet!

Those odds are reassuring.

I see that the Tories are 6-1 odds on favourite to be the largest party, and better than evens to form a majority government. Labour is about 5-1 against being the largest party, and 20-1 against forming a majority government as you said.

I tend to take more notice of the bookies odds (and of course the markets) than I do with opinion polls. So far, so good.

[scrumpyjack]

McDonnell will have planned in advance what they are going to do if elected. The announcements will already have been drafted. It certainly will not be a case of things having to wait for a budget.

Labour have previously had retrospective taxation. Healey one year had a retrospective surcharge which took the marginal rate of tax over 100%. (It was already 98% on investment income and the surcharge took it over 100%).

The coalition government had two different CGT rates in the 2010/11 tax year. Disposals on or after 23 June 2010 incurred a higher rate than disposals from 6 April to 22 June.

[scrumpyjack]

Re multinationals changing domicile to avoid the confiscation of 10% of the shares, I would not be surprised if a Labour government changed the rules to prevent companies 'emigrating' in this way.

[Dod101]

I am surprised that it has taken us so long to have this sort of discussion. I am too old to be bothered to move elsewhere I think but I no longer hold utilities for example and I plane otherwise just to keep my head down.

Maybe Unilever was not so stupid after all in planning to move to the Netherlands.

However unless Comrade Corbyn gets a landslide I think there is a long way between his aspirations and his being able to actually implement his proposals. 1945 was a landslide result but I doubt very much that most people are ready for that sort of seismic change.

To answer the OP, apart from avoiding the obvious, I am doing nothing in particular at this stage. maybe buy some gold?

Dod

[tjh290633]

I have no plans to change anything at this stage. My investments are aimed at dividend income and are sheltered in an ISA. About one third of the companies have considerable exposure to overseas markets, so there is some protection on that score. However a significant rise in sterling is not impossible after Brexit, so that could have the opposite effect.

As we don't know how the future will unfold, I reckon that trying to second guess market reactions is likely to be unprofitable.

TJH

[Spet0789]

Aside from the obvious consequences (GBP, utilities and domestic cyclicals down), for me the most interesting question is how to hold assets.

Many here will have ISAs, SIPPs, property in the U.K. and so on. All of that is vulnerable to expropriation or punitive taxation (basically the same thing). Whether you hold BRK or Lloyds in your UK based investment accounts, both are in the firing line.

The only true way to protect wealth from these socialist thieves is to render it portable (gold/diamonds/USD cash) or to move it offshore.

I know others will have a different view, but the post-referendum chaos is the only reason this ludicrous shower is even within a sniff of government. Cameron would be literally wiping the floor with Corbyn.

[argoal]

It’s common knowledge that the markets do better under Tory governments than they do under Labour.


https://www.tandfonline.com/doi/abs/10.1080/096031098332925?journalCode=rafe20

Unfortunately the facts don’t support the idea.

In terms of share price movements across the period of a government's office, however, there is no statistically significant evidence (at commonly accepted confidence levels) to suggest that the stock market has performed better in either nominal or real terms under Tory government.

https://www.investmentweek.co.uk/investment-week/feature/2405617/-markets-currencies-fare-labour-conservatives

The point, if there is one, is there is no evidence whatsoever that the stock market and currency fare better under one party than the other.

....obviously this time it is different.

[Lootman]

It’s common knowledge that the markets do better under Tory governments than they do under Labour. Unfortunately the facts don’t support the idea.

Anyone under the age of 60 has only experienced one Labour government in adulthood, and that was the Blair/Brown government. Blair was quite benign for a Labour PM and certainly more moderate and market-friendly than the Labour leaders who proceeded or succeeded him.

The idea of the markets doing well under Corbyn and McDonnell is barely worth considering. And it is probably not a coincidence that the bull market that started in the very early 1980s happened very soon after Thatcher gained power and banished the socialism that had been the norm for the post-WW2 years until then.

You see the same effect in the US. Markets did well under both Clinton and Obama. Both were Democrats but neither were socialists. The US market will take a big hit if it starts to look like Sanders or Warren will become President next year, at least if the Dems take the Senate as well.

Fortunately the US and UK markets are both showing no sign of either nation lurching to the Left, so be grateful for that.

[Alaric]

What Labour might do very quickly, if only because they have to, is impose restrictions on sending money overseas.

For as long as the UK remains a member of the EU, is that actually possible? Single market etc.

[vrdiver]

I saw an article in the Mail over the weekend, and basically it advised buying gold or defensive stocks if Corbyn gets in, and if Boris wins then should get a rise on the pound and growth in UK stocks (small/mid cap).

(my emphasis)

Whoever gets in, we will have another period of negotiating - either for a "new deal" (Corbyn) or another attempt to move on to the transition period through to the end of 2020 (Johnson). If by some miracle the LibDems formed a government then calling off Brexit might create a surge of business relief, but also some worry that some would (and quite fairly) want to have another go at getting to Brexit.

Assuming it's a hung parliament with the SNP and the LibDems refusing to form a coalition with either Labour or the Conservatives, then a minority government of either leaning is likely to stumble on for another year of Brexit uncertainty.

I'm wondering whether the traditional Santa rally will be amplified by knowing who's in power, or if it will be crushed by yet more confusion?

VRD