VAR Capital’s thoughts on this historic election

We have been busy discussing and analysing the implications of the Conservative Party’s biggest election victory since Margaret Thatcher’s win in 1987.

With almost all results now declared and the Tories set to secure a majority of 78 seats, everyone’s focus is again shifting towards Brexit and any potential trade deals.

The analysts and economists at JP Morgan have succinctly summarised the four most likely scenarios we will be faced with:

1. Extension: transition terms extended into 2021 – 40% probability
2. Deal: New treaty with new trade relationship – 30% probability
3. No deal: No new treaty as transition period expires – 25% probability
4. New referendum on Brexit terms – 5% probability

We sympathise with these views and agree that the ability to negotiate a trade deal within the deadline poses some downside risk for the market in Q2 2020. It does however look like a deal will be reached and whether with or without a deadline extension, the possibility of no deal has now been largely mitigated.

We also believe this strong Conservative majority is likely to lead to a further uplift in risk assets (UK domestic equities, UK utilities and banks, real estate and credit) and might put pressure on export driven companies.