I have always been a little wary of fund managers’ political pronouncements ever since I read a US investment bank’s assertion that George W. Bush’s reelection would be much better for global stability. Anyway that is a debate for another time.
As the polls point to a hung Parliament, fund managers’ warnings about what it might mean for markets should be heeded – but I would argue, only up to a point. Bad for equities they say, worse for bonds with the most outspoken critic Threadneedle, though many other houses have been muttering darkly too.
I have to question a few things however. First, the UK does not seem, at this moment in time, to want to hand an overall majority to one party. We have always had a funny sort of two and a half party system in England and three or three and a half in Scotland and Wales, since the 1970s anyway. David Cameron is not enthusing the centre ground probably as a result of two things he can’t do much about – they are worried he will be too like Thatcher, and they are worried he will be too like Blair, possibly simultaneously, which I must admit would be some trick. So he may find himself leader of the largest party but not with an overall majority.
But this is where I take exception to some of the fund managers’ comments at least in part. A hung Parliament doesn’t have to be weak, if it leads to a proper coalition with an agreed programme.
The centre piece of any adminstration would have to be the economy, the key decisions being the whens and hows and wheres of reducing the deficit. Personally I can’t see the problem with say Clegg and Cameron and Osborne and Cable working out how to clean up the mess. It is going to take some time to work out what to do anyway.
So I would finesse the arguments of the fund managers somewhat. It is surely not a hung Parliament that is the problem. It is a hung Parliament that leads to a minority adminstration or a flimsy pact between the Libs and the largest party that is.
I wonder if fund managers are fighting shy of getting too involved in the arguments. They pop their heads up, say something political and then bury their heads back in the spreadsheets. But I would argue that since they are in for a penny, they should also get in for a pound.
First the Lib Dems should commit to trying to form a proper Government with the largest party to emerge after the election. Clegg has been talking nonsense about staying out of the fray and picking and choosing the issues that his party might support while keeping a minority Government in power. I think he should be told that for the economic sake of the country he cannot have his cake and eat it.
Second, someone should suggest to Cameron that keeping the country in an uncertain state with the medium term goal of securing a majority at a second autumn election, is also the sort of selfish party political behaviour we can’t afford either.
A similar message should be sent to Labour, though, to be frank, given that Brown can’t even work with the coalition of interests within his own party, I don’t know how much hope I would hold out.
So in essence, I would argue that markets would be correct to worry about uncertainty. But in the event that the British public decide not to hand one party a definite mandate, rather than fretting about it too much, fund managers should send a message to all parties that they have to behave like grow ups and create a coalition that can genuinely deal with the structural problems of the economy. That surely is the best result for markets as well as everyone else.
I agree with the main thrust of this article, but it is not just politicians who have to behave like grown ups in event of a hung parliament, the markets need to get a sense of perspective here. The upcoming election is hardly presenting us with the kind of radical differences in economic policy seen in 1906, ‘24 or ‘45, or for that matter 1979 or ’97.
All parties agree on cutting the deficit and, to this end, are prepared to curb public spending and raise taxes, whilst at the same time maintain an extensive publicly-funded social infrastructure. The economic consensus has effectively already been established, the argument is one of impulses and degrees. The range of economic policy variation in the event of a hung parliament is so moderate that, if the markets panic purely on the back of this scenario, it is their maturity that should be called into question.