Nutmeg said it has been focusing on the potential impact of May’s election on financial markets for some time and wants to guard UK investments against instability.
“There is now a good chance no single party will claim power and a strong likelihood we’ll see a minority coalition government,” said Nutmeg’s chief information officer, Shaun Port. “This leads to uncertainty which in turn can create volatility in financial markets.
“It may take many weeks to form a government, rather than days, which will only add more fuel to speculation and nervousness in financial markets.”
Although the platform still holds UK stocks, it has reduced its FTSE 100 investments by a third. It said it would not scrap UK equities completely from portfolios because “a weakness in sterling against the dollar may prove useful in other regards”.
Nutmeg identified the Nordic region as having a similar investment exposure to the UK, as well as strong economic growth. While stocks in both Japan and continental Europe were also said to provide greater exposure to improving economic prospects because of quantitative easing.
“Dismissed as a blip”
“The UK election may be dismissed as a blip from a long-term perspective, but the move away from the traditional two-party state could have significant permanent ramifications for how the UK is perceived abroad,” said Port.
“The UK is the world’s third largest stock market but overseas investors have many markets to choose from.”
The investment manager pointed to the demise of overseas investors buying UK government bonds since the start of this year.
It also said it expects international investors to reduce their holdings of UK stocks in the coming weeks because many will be worried the value of the pound is going to fall sharply across the board.
