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Emma Wall: Hello, I'm Emma Wall. How much does the macro really influence the stock market? I was recently joined at the Morningstar Investment Conference by Threadneedle's Simon Brazier to discuss just that.
Hi, Simon.
Simon Brazier: Hi, Emma.
Wall: Good of you to join.
Brazier: No problem at all.
Wall: So you are about to give a presentation on whether politics and economics influence stocks, influence markets. We've got a big political event coming up in the U.K. in the next year. Will that have an effect on stock markets?
Brazier: Well, the interesting fact, I think, is at the moment, the perception is that the election, which obviously we're talking about, will be pretty similar to last time and I think the expectation is we'll see a coalition, but what coalition comes out of it will be the critical factor. I think if it's a coalition with the Tories in, then relatively little impact and people are sort of used to that – their main policies.
Lib Dem-Labour coalition, I do think will have a bigger impact because politically they are much further away from the Tories than they have been for some time; the Labor party, and I think the banking sector, the housing market, and some of the consumer sectors could be affected because they have much more differentiated policies and they are much more prepared, I think, to take the economic profits of companies and tax those, as we've seen with Miliband, for example, with the utility companies.
Wall: And of course, the second part is economics. We've had results this morning. Unemployed figure down to a five-year low. That was going to be the trigger a long time ago we were told for rates to rise. That hasn't happened. So how much does economic policy, economic data, have an influence on markets?
Brazier: Well, I'm particularly concerned at the moment, because the consumer has been very, very strong and I think the perceived wisdom is that the U.K. economy is recovering, all is fine, and actually the consumer will carry on and the consumer drives a significant part of U.K. economic growth.
I have my concerns, particularly because the point you make, Emma, which is rising interest rates and actually base rates can stay low for some time. But if we see the yield curve steepening, the rate at which people will lend the U.K. government at three, five, 10 years, that does have an effect on mortgages or the way companies borrow. And if we start to see mortgage rates creep up, forget about base rates, but mortgage rates creep up, which I think we will, I think that's going to have a dampening effect on the consumer. So I do have some concerns there.
Wall: Putting all that to one side, it's important to say that much of this is just noise when it comes to investing, isn't it? You are a stock-picker and certain people should stay that way?
Brazier: Yes, and I always say this, if you follow the macro and the economics first, you'll usually make the wrong decision. I mean, a good example is the U.K. house-building sector. Who would have said you should have bought house builders whereas in 2010 when you saw unemployment going up, the outlook for the U.K. economy very, very weak, mortgage rates at all-time lows, housing building at 50% of where it was three years earlier and yet that was the times by house builders because they were trading on such cheap valuations.
Today, you're paying quite high valuations, everyone now likes them, but take Persimmon (PSN) for example, you would have missed out nearly quadrupling your money in the last four years. So often, it's being contrarian against the macro and the politics that is the best as an investor rather than being the follower.
Wall: Simon, thank you very much.
Brazier: No problem.
