The stock market adage to “Sell in May and go away, don’t come back until St Leger’s day” is one that will no doubt be used again this year. However, with the general election campaign under way, the phrase may have more relevance now than in May.
Electioneering seemed to gain some kind of momentum over the weekend, with both Labour and the Conservatives addressing gatherings of their party faithful accompanied by a series of television interviews and opinion polls.
The effect, as far as the markets go, was to create more uncertainty. Another old investing adage is that “markets climb a wall of fear”, but the real fear is this uncertainty as to whether one party or another will gain enough votes to form out an outright government.
It is dangerous to read anything into election polls – just ask Neil Kinnock – but it seems likely the next few months is going to see sustained uncertainty affecting the markets. It is likely we will not know who is going to form the new Government until the day after the election, which could be as late as May.
Uncertainty is a greater fear than concerns about the economy or individual businesses. So, arguably, the stock market adage should be adapted to “sell in March and come back for the World Cup”. Of course, this adapted phrase does not have the rhythm of the old one, but it may offer investors better direction.
All this presupposes investors have fully allocated their cash back into the equity markets, or are fully exposed to the UK’s recovery. Advisers and asset allocators will know how accurate this is, but there seems to be anecdotal evidence many investors have not even been fully tempted back, leaving little hope of attracting the ‘new’ investors that can usually be enticed into the market.
The current uncertainty does create a real opportunity to get investors back into the UK equity market. While headlines may be being made about the weakness of sterling, which is bad news for British tourists abroad, it is largely background noise in the overall debate.
Core investing is about allocating assets for the medium to long term, which means three to five years on the shorter side of this timeline (but more realistically five to 10 years) and, on this basis, there is genuine value to be had in the UK.
We can all debate the merits of emerging markets, and Investment Week is a great believer in the potential of this region, but the reality is the majority of private investors in the UK still feel more comfortable with a strong allocation to their home country. Many investors have probably wondered if they missed the chance to get into the recovery of the FTSE.
This is always a discussion about market timing, which in itself is irrelevant because timing depends on an investor’s time horizon – there is always a time to get into any market with the right time horizon. What the current uncertainty in the UK market and the drift does is likely to affect the level of the FTSE between now and the outcome of the election. It also highlights the value opportunity in the market.
They question for advisers is not whether to allocate assets to the UK – this is clearly a superb buying opportunity – it is which manager, or more correctly, which managers, to select. And the UK investor is spoiled for choice when it comes to this decision.
