In 1789 French parliamentarians attending their National Assembly gravitated to one side or other of the Assembly President; those who sat to his right sought to defend the king and the established hierarchy; those to his left supported the French Revolution and further reform. Over the ensuing decades, the seating arrangement took root. “Left” and “right”, initially used as insults, became shorthand for political positions all around the world.
In today’s UK parliament, the old left–right division is more apparent than it has been for years, although the monarchy is no longer one of the major bones of contention (despite a certain TV interview). The two main political parties have now published their manifestos (see Wealth Check, below) and they project very different visions of the UK’s future.
Yet each, in its way, also conjures the past. The Conservative manifesto argues that “we led the way in opening up trade in manufactured goods in the last two centuries”; it goes on “for the first time in nearly half a century, the UK will have its own independent trade policy once we leave the EU”. Labour’s main historical focus is the postwar Attlee government of 1945: indeed, it repeats word-for-word a manifesto promise on housebuilding from that same year.
Despite their eye-catching differences, both parties now wish to spend. This is perhaps understandable, given the OECD last week pushed for G20 governments to open the spigots, and that the latest Bank of England analysis suggests investment is needed in the UK. (The latter, however, argues that business will begin to provide it once Brexit uncertainty is ended.) But the difference between Tory and Labour spending plans is, of course, enormous.
Johnson and Corbyn delivered their respective visions to a somewhat sceptical CBI last week. The prime minister had made enemies with his hostile comments about UK business last year, but Jeremy Corbyn probably fared worse, as his audience was unnerved by such pledges as the nationalisation of utilities, a financial transactions tax and putting workers on boards.
Markets offered their own assessment; polls showed Labour falling to some 15%-17% behind the Conservatives in the polls – and sterling rose to its highest level in two weeks.
A strong sterling tends to weigh on the FTSE 100, but equities worldwide are generally in rally mode at the momenton 2020 growth and trade hopes. On trade, more positive noises from both sides of the US–China, Japan–South Korea and UK–EU trade negotiations boosted sentiment. Meanwhile, volatility has been exceptionally low; many investors, it seems, spy opportunities.
“The global economy has struggled to grow coming out of the financial crisis, central bank intervention has driven interest rates negative in many cases, and you have the industrial revolution of our age – the technological revolution,” said Dan O’Keefe of Artisan Partners, co-manager of the St. James’s Place Global fund. “All three factors have driven investors to companies they believe can grow in any environment.”
Stocks slipped in the back half of last week, however, after the US Senate passed a bill that would oblige the White House to reconsider Hong Kong’s special status on an annual basis – a shot across the bows of US-China rapprochment. The S&P 500, China’s CSI and the EURO STOXX 50 all fell. Earnings last week were mixed: some good news for US retailers (such as Lowe’s), but bad news for some global names (like Kingfisher). The sharp dip in EasyJet’s earnings was smaller than expected, pushing up the share pricep; the recent demise of Thomas Cook was given as one of the reasons, since it freed up airport slots. Meanwhile, in Asia, Alibaba raised $11 billion in its second listing – this time in Hong Kong.
The city continued to be a global flashpoint last week, as a court ruling angered the mainland. Local elections, of little practical importance, suggested Beijing is also failing to win its PR war in the city; and pushed up Hong Kong stocks in early trading this morning.
The People’s Bank of China, meanwhile, chose last week to cut rates for the first time in four years, signalling the advent of a new easing cycle. More importantly for China, however, data showed that capital is increasingly flowing from dollar to renminbi assets, and that consumption in China is on the rise. The shift suggests global investors are finding more and more opportunities in the country.
“In China, the two areas we’re interested in are the internet and healthcare,” said Mark Baribeau of Jennison Associates, manager of the St. James’ Place Balanced Managed fund. “We’ve increased our exposure to companies like Alibaba which are doing very well even in a tough environment; continuing to gain market share. And China’s healthcare system is way behind where it needs to be to satisfy the needs of the country, so they’re investing heavily in building their own life sciences industry.”
With less than three weeks to go until the general election, Labour and the Conservatives have now set out their policy agendas.
Jeremy Corbyn’s Labour Party will campaign on the most radical manifesto put before the UK public in more than a generation. It includes plans to raise Income Tax for those earning more than £80,000, to reverse cuts to Inheritance Tax, and to introduce a hike in Corporation Tax. In contrast, the Conservatives have taken a safety-first approach, ruling out increases in Income Tax or National Insurance – and even a change to Corporation Tax.
According to Conservative figures, by 2023/24 there will be £2.94 billion of extra annual spending and £3.75 billion of net tax increases over and above what has already been announced. That compares with the Labour proposal for the same year of £82.9 billion extra spending, matched by the same amount in additional tax revenue.
The odds on the Labour Party gaining a majority are currently small but, regardless of which party is in power after 12 December, the tax reliefs currently available to savers are unlikely to get materially better after the election. Investors are therefore advised to seek financial advice ahead of the election to discuss how they might be able to improve their tax health.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
In The Picture
Asia Pacific has supplied both the global economy and global indices with much of their growth through 2019. As the world grows ever more reliant on the region, we asked Alistair Thompson of First State Stewart Asia, manager of the St. James’s Place Asia Pacific fund, what the region’s biggest risk would be going into 2020. (To watch the full interview, see Asia’s billions.)
The Last Word
Our founder Jesus Christ was of course not white, middle class and British – he certainly wouldn’t have got a visa, unless we were particularly short of carpenters.
Justin Welby, Archbishop of Canterbury, weighing in on the UK immigration policy debate last week
First State and Jennison are fund managers for St. James’s Place.
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