Bloomberg: Britain Becomes Haven for Investors Spooked by Chaos in France
Artem Karlov
Jul 2, 2024Markets are calm about the likely victory of the Labour Party, whose traditional support for tax increases and trade unions has historically had a negative impact on markets, the agency notes. Markets, on the contrary, hope that Keir Starmer's center-left program will bring an end to the period of instability in British politics, marked by Brexit in 2016 and the mini-budget crisis that led to Liz Truss's resignation in 2022.
For the first time in 10 years, the UK looks like an 'island of stability' in Europe, Bloomberg quotes Shahab Jalinoos, head of global currency research at UBS. 'From the pound's perspective, this is very good,' the analyst notes. In June, the pound rose by 0.5% to 84 pence against the euro, and in the middle of last month briefly reached its highest level in almost two years. Analysts at Barclays Plc believe that the pound's rally will continue and it could reach the 80 pence mark against the euro — a level not seen since Brexit.
At the same time, the latest global managers survey conducted by Bank of America in June shows that in Europe, investors currently prefer the stock markets of the UK and Spain, with France being the least preferred. A month earlier, France was the favorite, but after the European Parliament elections on June 9, which saw Marine Le Pen's 'National Rally' win, and the announcement of early parliamentary elections, investors have become much more cautious about France. Markets are concerned about the growing budget deficit, which has caused the spread between French and German sovereign bond yields to widen after June 9.
In contrast, statements by Starmer and his choice for Chancellor of the Exchequer, Rachel Reeves, give investors confidence that the new government will not take any radical steps regarding spending or borrowing, Bloomberg notes. Moreover, both have promised to improve the UK's relations with the EU, especially in areas such as trade and immigration.
Ahead of the elections in Britain, investors are particularly optimistic about developers' stocks, as Labour has promised to restore mandatory housing targets and ease planning restrictions, Bloomberg notes.
However, according to Gregor Hirt, chief investment officer at Allianz Global Investors, the elections are unlikely to be a significant event for the markets. This is confirmed by the expected monthly volatility of the UK's FTSE 100 being near the lowest levels of the year. In contrast, for the French CAC 40 index, ahead of the second round of elections, this indicator has risen to its highest level in more than a year.
Some analysts are still cautious about the return of Labour to power. John Mauby of Pictet Asset Management recently stated that the yields on long-term UK sovereign bonds are likely to rise, as the next government will likely have to increase public spending to fulfill promises made during the election campaign. For this, the Treasury will have to increase the amount of debt issued.
