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Politics and economics the majority of the time do not interest me - but they do have a bearing on markets in some instances according to Threadneedle’s head of equities Simon Brazier.
“If politicians keep themselves to themselves markets will be unaffected by next year’s general election,” Brazier said at the recent Morningstar Investment Conference.
“But we should be nervous of politicians interfering – in particular of Labour’s plans to stamp its mark on UK industry. Miliband’s proposal to fix energy prices for example will have a significant effect on those companies’ share prices and Labour’s war on problem gambling will mean problems for investors in Ladbrokes and William Hill.”
Brazier did admit that economics and politics give you opportunities to be a contrarian investor.
During the recession, thanks to the European downturn, a dire consumer outlook and expectations of a rising oil price, easyjet’s prospects looked dim.
But low cost airlines win in a low cost world, and easyjet (EZJ) was trading for less than book value, meaning you could have sold off all the planes on the company’s books and made more than you paid for the shares so Brazier invested – and the share price subsequently rebounded from around £6 to £18.
“If you are driven by valuations first, and the macro view second you can find some great opportunities,” he said.
Brazier said that the UK economy was over dependent on consumption, pointing out that two thirds of GDP is domestic consumption compared to just 35% in China.
He spoke as Mark Carney delivered a rather upbeat Inflation Report, revealing the UK is in rude health and the unemployment forecast has been lowered to just 6%.
But Brazier said that the consumer heavy economy was fragile, and would be knocked off-course by an interest rate rise.
This Government has cut spending by £21 billion - so debt to GDP has fallen. If growth rates are on course, then no money has to be borrowed in 2018/19, proving that austerity Britain has been a success.
However debt forecasts are concerning, with projected figures from the OECD showing age-related spending as a percentage of GDP is predicted to skyrocket around 2025.
The answer? Taking pensions out of the equation. According to further data from the OECD, if it was no longer the responsibility of the state to provide for consumers in their old age the UK would see debt fall back to levels last seen in 1980. Auto-enrolment could well be laying the foundations for this abdication of responsibility.
