Labour faces low bar in re-attracting foreign funds: Mike Dolan
By Mike Dolan
LONDON, July 10 (Reuters) -The remarkable thing about investor reaction to the UK's new Labour government is how much just a modicum of stability, consistency and competence is being richly applauded.
With exposure to British assets at such a low ebb after a decade of Brexit upheaval, seemingly endless leadership switches and 2022's almost farcical budget flub, it's a low bar to jump to please the financial crowd right now.
And that's probably just as well.
Mindful of limited fiscal space for any outsize signature spending push, Labour's proposals have been modest and hinge mostly on lifting growth with supply-side reforms such as simpler planning laws or seeding private-sector investment with grains of limited public sector cash.
Coupled with moves to improve Britain's battered relations with European Union trading partners and a huge parliamentary majority that sees it comfortably in power for much of the rest of the decade, the temptation for global fund managers to tilt back toward unloved UK assets is clear.
And "softly, softly" music rather than "crash, bang, wallop" is perhaps what's most soothing to the ear, not least in a year of noisy and confusing politics elsewhere.
"(Prime Minister)Keir Starmer's first task is simply to rebuild faith in government," reckoned Jason Thomas, Carlyle's head of investment strategy. "Even modest success could prove a boon to UK asset prices."
That may already have shifted the dial for some.
"We turn overweight UK stocks," BlackRock Investment Institute Chairman Tom Donilon flagged on Tuesday as the world's biggest asset manager published its half-year outlook in the wake of last week's election. "The potential for relative political stability and attractive valuations may pull in foreign investors."
The global snub of UK equity - where the FTSE 100 .FTSE trades near a record 50% valuation discount to Wall Street's .SPX and which has seen billions of pounds exit over 44 straight months of net outflows through June - has long seemed ready for a rethink on even a whisper of growth or change in overseas sentiment.
What's more, analysis by fund tracker EPFR suggests there has been more interest from active managers tracking FTSE250 midcap stocks .FTMC for some quarters than the dire cumulative outflows suggest.
That's also true for the pound - which on a trade-weighted basis GBPTWI=BOEL is back to levels not seen since it was sunk by the Brexit referendum eight years ago and where speculative net longs have returned in recent weeks leading to the election.
CFTC data showed net sterling long-jumped to 62,041 contracts in the week to July 2 - the largest since March.
BORING NOT BAD
BlackRock claims it remains neutral on British gilts - the epicentre of the market quake surrounding 2022's budget blowout under then-Prime Minister Liz Truss. But it said long-term gilts now "stand out" again as a strategic play and it also likes inflation-linked sovereign bonds.
What isfor sure is that the first gilt auction of the new government on Tuesday saw linker debt go like hotcakes.
The Debt Management Office said it sold 4.5 billion pounds of an inflation-linked 30-year debt - where orders had topped a whopping 66 billion from record 222 bidders.
And that chimed with the take from Europe's biggest asset manager Amundi, whose response to the election result last week was to say gilts came "a step closer to becoming a safe haven" due to improving UK inflation and fiscal dynamics.
"A re-rating is merited and would be a big turnaround after the volatility seen during the years of UK political uncertainty that started with Brexit in 2016 and continued through Liz Truss' short tenure," it said.
Gabriella Dickens, G7 economistat French asset manager AXA Investment Managers suggests a quiet return of understated UK stability could have profound long-term implications.
"The UK appears, for the first time in a while, bright compared to its peers," she said, adding the so-called King's Speech on the government's legislative plans on July 17 would likely retain the predictable tone Labour campaigned on.
"Boring is not a bad thing for economies," she said, stressing a recovery of external investment into the UK would be "a material tailwind for growth and an unseen boon for the new government."
Germany's Deutsche Bank this week said there were "upside risks" to its 2024 forecast of 0.8% - accelerating to 1.5-1.6% over the next two years. "The new Labour government will likely benefit from a post-election growth dividend, with cyclical tailwinds strengthened."
And as to a better post-Brexit settlement with the European Union, advice from many in that sphere is also that an open and cordial approach is better than new demands or a dramatic change of tack.
Starmer on Monday promised improved post-Brexit trading rules and a revamp of the "botched deal" signed by former premier Boris Johnson - but he may just need to knock on some doors again to reap rewards.
"A period of calm, predictable and constructive diplomacy would do wonders for the UK's reputation," wrote Charles Grant at the Centre for European Reform in an open letter to Starmer on ways to re-engage with the EU on a host of different levels.
To be sure, market reaction since Thursday's results has not been overly dramatic.
Long prepared by months of opinion polls pointing to a Labour landslide, the pound, gilts and UK stocks have given back some of the early modest gains.
But the bar for Labour to deliver what most international investors seem to want is clearly not that high and is already being jumped.
The opinions expressed here are those of the author, a columnist for Reuters.
Parliamentary seats won by major UK political parties https://reut.rs/4cNErvg
Funds investing in UK stocks have seen 44 months of outflows https://reut.rs/3Y9RTpx
UK borrowing costs have risen sharply since 2021 https://reut.rs/3XKN85s
Sterling senses return to stability https://tmsnrt.rs/3WeHffr
UK first of G7 to return to inflation target https://tmsnrt.rs/3S1GMe6
UK business investment stalled after the Brexit vote https://reut.rs/3RQGUNL
by Mike Dolan X: @reutersMikeD; Editing by Rod Nickel
Các tài sản liên quan
Tin mới
Khước từ trách nhiệm: các tổ chức thuộc XM Group chỉ cung cấp dịch vụ khớp lệnh và truy cập Trang Giao dịch trực tuyến của chúng tôi, cho phép xem và/hoặc sử dụng nội dung có trên trang này hoặc thông qua trang này, mà hoàn toàn không có mục đích thay đổi hoặc mở rộng. Việc truy cập và sử dụng như trên luôn phụ thuộc vào: (i) Các Điều kiện và Điều khoản; (ii) Các Thông báo Rủi ro; và (iii) Khước từ trách nhiệm toàn bộ. Các nội dung như vậy sẽ chỉ được cung cấp dưới dạng thông tin chung. Đặc biệt, xin lưu ý rằng các thông tin trên Trang Giao dịch trực tuyến của chúng tôi không phải là sự xúi giục, mời chào để tham gia bất cứ giao dịch nào trên các thị trường tài chính. Giao dịch các thị trường tài chính có rủi ro cao đối với vốn đầu tư của bạn.
Tất cả các tài liệu trên Trang Giao dịch trực tuyến của chúng tôi chỉ nhằm các mục đích đào tạo/cung cấp thông tin và không bao gồm - và không được coi là bao gồm - các tư vấn tài chính, đầu tư, thuế, hoặc giao dịch, hoặc là một dữ liệu về giá giao dịch của chúng tôi, hoặc là một lời chào mời, hoặc là một sự xúi giục giao dịch các sản phẩm tài chính hoặc các chương trình khuyến mãi tài chính không tự nguyện.
Tất cả nội dung của bên thứ ba, cũng như nội dung của XM như các ý kiến, tin tức, nghiên cứu, phân tích, giá cả, các thông tin khác hoặc các đường dẫn đến trang web của các bên thứ ba có trên trang web này được cung cấp với dạng "nguyên trạng", là các bình luận chung về thị trường và không phải là các tư vấn đầu tư. Với việc các nội dung đều được xây dựng với mục đích nghiên cứu đầu tư, bạn cần lưu ý và hiểu rằng các nội dung này không nhằm mục đích và không được biên soạn để tuân thủ các yêu cầu pháp lý đối với việc quảng bá nghiên cứu đầu tư này và vì vậy, được coi như là một tài liệu tiếp thị. Hãy chắc chắn rằng bạn đã đọc và hiểu Thông báo về Nghiên cứu Đầu tư không độc lập và Cảnh báo Rủi ro tại đây liên quan đến các thông tin ở trên.
