Markets $SPX500 open a little lower today. Our portfolio is up by 0.6% with big gains from $GME and $SWKS . $GME is set to announce earnings tomorrow after market closes. Our $OIL stocks $PE and $CXO in red as oil prices fall. UK General Elections 2019 - INVESTING in the UK 🇬🇧
There are elections in the UK this week, on the 12th of December. These elections are particularly important because of Brexit but we won't talk much about Brexit today. Let's focus instead on the British economy, the British Pound $GBPUSD and how the policies of the different parties will affect them. Let's not forget our only British investment, Diageo $DGE.L .
Since the Brexit referendum, the Pound Sterling has been weakening but if you look at a longer term chart, you will see that the weakening has been happening for decades now. The main reason is that it is gradually losing its status as a reserve currency. Since the fall of the British Empire, the pound has been weakening with other countries such as Japan, France, Germany and now China rising to power. As these countries play a more important role on the world's stage, their currencies become more and more important. All these countries have companies which are competing with British companies. The largest British company is BP $BP.L but it is smaller than ExxonMobil $XOM or Royal Dutch Shell $RDS.B . Tesco $TSCO.L is the largest retailer in the UK but it is not as big as Walmart $WMT , Amazon $AMZN and not growing as fast as Aldi. Tell me one big tech company in the UK. The largest bank in the UK is HSBC.L , Citigroup $C and JPMorgan $JPM are taking their market share. Barclays $BARC.L another big UK bank is losing market share in the UK itself to Spanish bank Santander $SAN .
Even though Great Britain is losing its status as a regional power and the pound as a reserve currency, the economy is not doing that bad. It is actually doing better than Europe. Unemployment rate is low, inflation is low but interest rates are low at 0.75%. It means that in case of a recession, the bank of England won't be able to cut rates and implement other monetary policies to mitigate the effects of the recession. And the UK has a debt problem with a Debt-GDP ratio of over 100%. With the weakening of the pound, this is not good. They cannot just keep printing like the US.
The stock market index FTSE 100 $UK100 is at the same level it was 20 years ago. The FTSE 250, however, is gaining value. It is because investors are not investing in the large British companies as they cannot compete overseas. The local companies are still growing as the economy is growing.
The UK has three main problems which the new government will have to deal with:
1. Brexit
2. Debt and weakening of the Pound
3. Lack of innovation and competitiveness internationally
There are five main parties contesting in these elections:
1. The Conservative Party - the current government
2. The Labour Party
3. The Liberal Democrats
4. The Scottish National Party
5. The Brexit Party
Only the conservatives and labour can actually win. The others are, however, going to affect the elections. More details in video.
If the conservatives win, nothing will change. It will be the status quo. Brexit will get done. But if they don't get a deal with the EU, things will be very bad. According to Ray Dalio, British Prime Minister Boris Johnson is a loose cannon and I'll agree with him.
If labour wins, it will be very bad. The leader of the Labour party, Jeremy Corbyn, is more socialist that Bernie Sanders and want to nationalize utilities. This will be very bad for the economy and the pound. The debt level will go to unprecedented levels and the UK could be the next Greece.
The choice seems to be between a loose cannon and a crazy socialist hippie. It doesn't look so good. The Liberal Democrats are the only ones addressing the debt problem and talking about innovation and they also want to annul Brexit but I don't think they can win(they have the best plan for the economy in my opinion).
The polls say that the Conservatives will win with a majority. If this happens, it will be good for the pound in the short term but in the long-term, if they don't work on innovation, nothing will change. Don't be fooled by the average P/E ratio of 15.6 on UK stocks. Without innovation, there is no growth. I won't advice anyone to invest in the UK right now because of too much uncertainty but if you really want, invest in an exporter as the pound will keep weakening. An exporter with a moat is better. That's why I have Diageo $DGE.L in my portfolio, the largest alcohol producer in the world. It doesn't matter who wins the elections, people will always drink alcohol.
I'm never going to bet against the UK. This country colonized 25% of the world. This is the country of Newton, of Jane Austen, of Adam Smith. But right now, I don't think investing in the UK is a good idea. Watch the full video on YouTube:
https://www.youtube.com/watch?v=nRGY33pC3f0&list=UUPO3uUyoXSaFWG-Ldq1mqEQ
You can find a full analysis of the British elections here:
https://ishfaaqpeerally.teachable.com/courses/662813/lectures/12951983
Join my private investing group on Facebook for more:
https://www.facebook.com/groups/IshfaaqInvesting/