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Politics and the stock market – an HL fund manager’s view

From the 2024 US election to the UK’s very own general election, HL Select Fund Manager Steve Clayton takes a look at the impact he thinks they will have on markets.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Steve Clayton
Head of Equity Funds

Published on 7 July 2023

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

Stock markets are many things. They generate wealth, allow companies to fund raise for investment, and they try to predict the future.

Markets are always trying to figure out what the future holds for companies. With this in mind, the next year or two are likely to see politics playing an unusually large role in investors’ thinking.

What’s going on in global politics?

In 2024, we’ll see a presidential election in the US, the first EU parliamentary elections since Brexit and quite likely another UK general election. And India goes to the polls too.

So, a huge swath of the global economy is potentially up for a change in leadership in just one year.

The 2024 US presidential election

The US seems likely to see Joe Biden standing for re-election. But against who? Donald Trump doesn’t yet have the Republican nomination and the party appears in little hurry to provide it in the face of mounting legal concerns. But can anyone mount an effective challenge against him?

So far, Florida Governor, Ron DeSantis appears to be losing momentum. Whether anyone else will appear with the backing and appetite to take on ‘The Donald’ is far from clear.

Right now, the most likely outcome looks to be a rematch of 2020, Biden versus Trump. A second term for Biden suggests more economic stimulus and more economic engagement with the wider world. A second term for Trump could reasonably see the US heading back towards a more insular ideology, possibly even ending support for Ukraine.

Elections in the EU

EU citizens get their chance to vote for change or continuation. At times it’s hard to tell whether the EU is a broad church or an argument. For the UK, the EU elections will be the most important for some time. That’s because we no longer have influence over Europe’s course, but it’s still our largest trading partner.

The UK's very own general election

The Labour party are building a policy platform based around investing in a green transition and creating a stronger technological base for the UK. The plans are as bold as they are expensive. At some point, the City is likely to sit up and take notice.

Where the Conservatives will be in their own policy thinking by then is far from clear. The polls put Labour far ahead, but not by enough to give a dependable majority, it seems.

Then there’s Scotland, Wales, and Northern Ireland. These nations could hold the keys to Number 10 if the polls don’t provide either Labour or the Conservatives with a working majority. And it might not come cheap.

What should investors do?

At some point in the next year or so, the market will get very excited about some if not all of this.

So, should you?

I don’t think so. Politicians say what they think will get them elected. They certainly won’t keep all their promises.

Businesses know this and manage themselves accordingly.

Think about a company like Unilever for example. It operates all around the world, so what goes on in one nation only affects a slice of the overall results. It can always move its headquarters and where its shares are listed if taxes become unreasonable.

At some point, somewhere in the company’s past pretty much every political card has been played and it’s managed its way through and come out the other side.

This all goes to prove one of the oldest investment mantras yet again. Diversify.

If investments are well spread, across different countries, companies, industries, and asset classes, then no single event, political, economic, or cultural is likely to sink the ship.

With HL Select, my team and I construct funds that spread our investors’ money across the shares of multiple companies that operate in many different parts of the world. We try to find businesses that are excellent at what they do, but which do many different things.

We think it’s the best way to look after our investors’ money.

This article isn’t personal advice or a recommendation to invest. All investments can fall as well as rise in value, so you could get back less than you invest. If you’re not sure an investment is right for you, ask for financial advice.

Steve Clayton is a fund manager of the HL Select range of funds.

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The HL Select range of funds is managed by Hargreaves Lansdown Fund Managers Ltd.

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