The last few days have been brutal for investors. The unthinkable happened against all the bookies odds and City’s expectations. While the FTSE 100 has declined by just 4%, since the close of Thursday night this belies some substantial volatility with major moves in Sterling, bonds and UK domestic cyclicals and financials.We view the primary risks as one of politics not economics, but political risk could lead to an economic one if not handled properly. Please contact us for a copy of the note.
A week today we will know. Will we stay or will we go? The unthinkable is now a real possibility and this note, which assumes a Leave vote, simply as that is the more complex capital markets result, looks at the immediate aftermath, the politics of it from a UK and EU perspective, the likely negotiating positions and battle lines, the implications for Scotland and the EU and perhaps our core assumption - the Machiavellian view, which we outline in the note.
This note looks at the long de-rating of equities relative to gilts and examines the likely trends from here. Equity income over the last decade has grown steadily, despite all the problems the financial sectors have seen. It is 28% higher in absolute terms than it was in 2008. The outlook over the next couple of years is more troubled given risk to oil and mining income. However even on a worst case scenario (far worse than we expect) the real income return exceeds 3% with a re-based level of growth. It screens for secure growing income. Please contact us for a copy.
The issue is dominating client meetings and a number of high profile reports have been written predicting that sun will cease to shine should the UK vote to leave. This report takes a more optimistic view of the UK's long term prospects. We examine the legal arrangements for leaving. We believe divorce would be one of evolution not revolution, given a) the likely legal time-scale to withdrawal b) legal obligations covering treaty law under the Vienna Convention c) the probable gradualist approach to amending EU directives.
Yesterday's budget was perhaps more placid than feared, although the trend to micro management continued. £70bn is still too much to borrow at this stage of the cycle. The UK remain's poorly positioned should there be a shock (not our core view). If you would like a copy of the report please contact us.