The UK is a political mess, and it's starting to weigh on the economy, and the performance of UK assets.
- The UK political scene is as uncertain as it has been for some time.
- Brexit talks appears to be becoming more chaotic
- Contrarians may see opportunities, but the situation could get far worse
Who would be Theresa May? She is at the helm of an unruly cabinet, and an unruly nation – each viciously divided over the issue of Brexit. She is faced with declining economic growth, lacklustre productivity and an intergenerational unfairness problem that threatens to destabilise the whole premise of capitalism.
The UK political scene is as uncertain as it has been for some time. At the start of the month, Labour presented a very different vision of the UK's future, one without privatised industries, PPP schemes and, potentially, where private ownership in general was significantly curtailed. For some, it will have its merits, but it is difficult to see international companies flocking to the UK to invest and Labour admitted that they had prepared scenarios for a run on the pound.
The Conservatives continued to try and move the conversation away from their dodgy conference set, the Prime Minister's cough and the flailing Brexit negotiations, not with a great deal of success. There were a few thoughts on an energy price cap, on tuition fees, but a lack of seductive holistic vision to draw in the next generation. And then there's Brexit. While some might have expected talks to start off chaotically and develop greater clarity as time went on, the opposite appears to be happening. Discussions are becoming more shambolic, the divisions wider and an untidy exit seems more and more likely.
It is relatively easy to envisage both a change in Tory leadership, a Corbyn government and something completely different altogether.
The situation is complex and confusing. It is relatively easy to envisage both a change in Tory leadership, a Corbyn government and something completely different altogether. One multi-asset manager commented that it had put him off UK assets altogether and he had very little exposure to UK government bonds, UK equities and sterling. Some argue that the UK market is international, and therefore that avoiding the UK stock market is not the right option. While this might be right in theory, the international flavour of the UK market hasn't stopped it being one of the least popular markets among international investors over the last 12 months. Companies domiciled here are apparently tainted by association. That may represent an opportunity for contrarians but it would require some courage.
These are uncomfortable times for the UK. The contrarian would invest at moments of peak pessimism. We're certainly on the way, but we may not be there yet.