Investors Should Ignore Political Lies at Their Own Risk

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Investors Should Ignore Political Lies at Their Own Risk

Investors Should Ignore Political Lies at Their Own Risk

The Market and Political View from Adam Jepsen, Founder, Financial Spreads.


Some people take what politicians say with a pinch of salt, others heavily discount their views, many simply ignore every word.

Some people take what politicians say with a pinch of salt, others heavily discount their views, many simply ignore every word.

Investors don't have that luxury.

Whether politicians tell the truth or not, whether they are misleading or not, what they say can often move the markets.

From a UK point of view, there are so many unknowns, and so much political positioning, it can make short-term trading difficult.

The misleading statements from both the Leave and Remain camps before the referendum helped no one.

Further misleading statements could easily cause more damage to the UK economy.


- - - - Example 1 - - - -

This weekend, the Boris Johnson (pro-Leave) wrote in his column "The reality is that the stock market has not plunged, as some said it would - far from it. The FTSE is higher than when the vote took place".

Reality Check:

Boris Johnson has given us the perfect example of a misleading statement. If Financial Spreads told these kinds of things to our clients the regulator would probably haul us in, or fine us, for being patently misleading. (Above, spot market prices as of 9.30am 5 July compared to closing prices on the day of the EU referendum, 23 June 2016.)

An estimated 75% of revenues of FTSE 100 companies come from overseas. In simple terms, the FTSE 100 valuation has benefitted from the weak pound.

The FTSE 250 is far more representative of the UK and therefore a better indicator of what investors think of UK PLC.

The 9% drop in the FTSE 250, and the pound's double digit falls against the dollar and euro, show a distinct lack of confidence in the UK.


- - - - Example 2 - - - -

George Osborne (pro-Remain) has also said that he is now planning cut corporation tax from the current 20% to "less than 15".

Reality Check:

Ignoring the political and fiscal difficulties of dropping corporation tax below 15%, Gorgeous George must know that he's unlikely to be the next UK chancellor.

Of course, he may just be trying to strengthen the UK's hand ahead of the EU negations. Either way, it's still misleading.


- - - - What Can an Investor Do? - - - -

The excess political noise can make short-term trading difficult. It's tricky to: For now, it might be safer to take a medium term view and base trading decisions on the facts e.g. GDP, PMI (Purchase Managers Index), inflation, corporate data etc.

This will reduce the number of trading opportunities but it should also reduce the impact of the political noise.


By Adam Jepsen, 5 July 2016


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