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The impact of the UK general election will define the economic climate for the next decade according to an investment expert speaking at a Canaccord Genuity Wealth Management seminar in Guernsey.
Simon Brazier, fund manager at Investec Asset Management, named the election as the defining moment of the decade and predicts that it will have a greater lasting impact on financial markets than the EU referendum and Greece debt crisis.
Mr Brazier said the majority Conservative win has contributed to a more supportive economy for UK businesses and believes that had Labour won many companies would have relocated.
“This election was clearly a very important event for investors. The certainty of a majority government has proved positive for financial markets and has created a more supportive environment for business growth. Simply, the Conservative Government is very pro-business.”
“The coalition government reduced corporation tax, and business investment has been driving GDP growth as a result. If Labour had won the election, the party would have increased corporation tax and slowed this growth.”
“If you had told me in 2010, that in five years’ time the UK would be the second fastest growing economy in the world, I would have been surprised. With increased business investment, UK debt in tighter control and the growth of northern powerhouses, the UK economy could be in a good position in the next five years.”
Though he has a positive outlook for the economy, Mr Brazier said that the current macroeconomic environment is not without its challenges.
“The EU referendum and Greece debt crisis are both significant challenges. In 2010 I would have said you were right to worry about Greece; however, today Greece is mostly isolated in Europe and the debt rests in the hands of the ECB and IMF, rather than the UK or the rest of Europe.”
Despite the positive impact of the election, Mr Brazier said that it is important that investors do not get carried away with their expectations. In current conditions, he considers a return of 3-8% as an attractive outlook. He went on to advise investors to focus on quality businesses with a strong capital allocation discipline.
“There are three things to look for in a business – a great business model, a great financial model and strong cash flows. Cash is king – we look for firms which invest their cash flows in the future of their business growth, and act in the long-term interests of their shareholders. Companies that focus solely on returning cash flows to shareholders through dividends have performed well in recent years; however, true wealth creation over the long-term requires strategic cash flow investment.”
Mr Brazier pointed to the firm Booker as a key example of this. Booker is a wholesale frozen food supplier which has seen its shares increased fivefold in the last few years. Charles Wilson, the chief executive of the company, reinvested in its own distribution network, meaning it is now the only frozen wholesaler able to deliver its products anywhere in the UK.
