Ignore the politics and stick to studying supply and demand, says Alan steel
IF YOU’RE anything like me, you’ll be fed up already with all the mudslinging and counter- promises in this election campaign.
Booms and busts are shared by both red and blue governments
And as the promises get ever more extreme, it’s hardly any wonder that voter turnout has fallen heavily since the good old days when there was hardly ever a news broadcast and when party propaganda sessions could be avoided.
Check the percentage turnouts. From 1950 to 1992 the average was almost 80 per cent, and since then has fallen to an average of just 64 per cent and less than 60 per cent in 2001.
This time it looks like being a hung parliament, which the so-called “experts” tell is the worst case scenario: a Labour government is bad for the economy and therefore the stock market, and vice versa if the Tories win. This time there’s the added ingredient of Scotland possibly swinging to the SNP and – shock horror – the damage that could be inflicted on investors should Scotland go it alone.
Having been an independent financial adviser (IFA) since January 1973 and having been born in 1947, I thought it would be interesting to see if there was any correlation between investment returns and UK election results since 1950.
That’s 65 years and 17 elections, eight won by Labour, eight by the Tories and one Con/LibDem coalition. What becomes obvious from a study of long-haul returns is that actually there’s no discernible difference.
Booms and busts are shared by both red and blue governments. Looking further back, over 110 years, you can see secular (long-term) moves and trends in stock markets and gilts that birth, mature and die whatever government is supposedly in power.
But why are we convinced the UK or Scotland matters economically? Right now the UK is less than 4 per cent of global GDP and Scotland, at an estimated $250 billion GDP, is a mere 0.35 per cent of the total. Putting that into further perspective, the combined GDP of California and Texas is bigger than the UK’s.
What is obvious is that over the last 110 years there’s something going on that’s far more important. Other countries and economies have been growing faster, trade has been transformed and new technologies have transformed all our lives for the better. Interest rates have been falling worldwide for almost 35 years and we’ve all had boom, bust and more boom in stock markets.
So does anybody, apart from politicians, believe entrepreneurs with a dream will bother about which party’s in charge in the UK? Do you honestly believe the boards at Apple, Shell or Petrobras give a hoot about UK or Scottish politics ?
What makes sense for ordinary investors is checking good, old-fashioned supply and demand. Comparing market movements in shares and gilts with demographics explains pretty well any long-term movement in investment values both here and in other economies.
Taking all this into account it’s more than likely that being overweight in world stock markets, underweight in fixed interest and sticking to income funds (for the risk averse) or global growth funds (for growth seekers) will deliver more added value than listening to those who still believe politicians make the difference.
• Alan Steel is chairman of Alan Steel Asset Management