First, Theresa May unexpectedly called a snap general election for 8 June – presumably with the intention that she will be able to strengthen her parliamentary majority ahead of tough negotiations with the EU. After the announcement, sterling soared while share prices fell quite sharply. This resulted in the FTSE 100 experiencing its worst fall since the Brexit vote last year. In the same way that the weakening of sterling had boosted the FTSE 100 since Brexit, the strengthening of sterling caused the reverse on this occasion. As previously discussed, the UK stock market tends to benefit from weak sterling because the large, international companies that dominate our market derive a large proportion of their earnings from overseas currencies.
Second, the results of the first round of voting in the French presidential election have provided some relief following concern that two extremist, anti-EU candidates might win through. In the event, centrist candidate Emmanuel Macron and far-right candidate Marine Le Pen polled the most votes and will go head-to-head in a second round runoff on 7 May. Markets soared after the result, with banks being among the biggest risers given the likelihood of a Macron, pro-EU victory and therefore less political and economic uncertainty.
Our tried and tested approach to deal with uncertainty is to focus on quality, value and diversification within equity markets. We feel that this leaves us well prepared for a wide variety of eventualities. If a surprise political development suddenly causes a particular sector to suffer disproportionately compared to expectations, for example, it will matter little in the context of long-term returns from a well-constructed equity portfolio that is diversified by company, sector and country.