London might be almost 7,000 miles away from Singapore. But something will be happening this week in the UK that could affect our investments here in Singapore. It is the small matter of the UK general election. It is reckoned by some that the voting could be the closest political contest in the UK for nearly 40 years. The outcome on 7 May could have an impact on some investors, even here in Singapore. It is probably true to say that in any democracy, governments can come and governments can go. But the impact during their time in office can…
London might be almost 7,000 miles away from Singapore. But something will be happening this week in the UK that could affect our investments here in Singapore.
It is the small matter of the UK general election. It is reckoned by some that the voting could be the closest political contest in the UK for nearly 40 years. The outcome on 7 May could have an impact on some investors, even here in Singapore.
It is probably true to say that in any democracy, governments can come and governments can go. But the impact during their time in office can still matter.
When Tony Blair and Gordon Brown were in charge of running the UK between 1 May 1997 and 6 May 2010, the FTSE 100 delivered a total annual return of about 4.5%. In other words, every £1,000 invested at the start of the Labour government in 1997 would have turned into £1,772 after 13 years.
During the Conservative/Lib Dem coalition government over the last five years, the FTSE 100 index has returned almost 10% including dividends – more than twice as much as during the Blair/Brown leadership. Put another way, £1,000 invested in the UK’s top 100 companies – whilst David Cameron and Nick Clegg were in charge – would have been worth £1,610 after five years.
Put bluntly, the UK stock market has performed well during the business-friendly Conservative/Lib Dem government. But before we jump to any hasty political conclusions, the stock market returns in the early stages of the Labour government were not too bad, either.
During Tony Blair’s term of office as Prime Minister, the FTSE 100’s return was 7%. But during his first five years, which could be a fairer comparison with the present UK government, the annual total returns were 5.5% a year.
It would seem, then, that whichever ways the numbers are sliced, the returns are not too bad. That might explain why some Singapore companies are attracted to the UK, as a long-term investment destination.
But that doesn’t mean there might not be short-term hurdles to negotiate after next week’s election.
For instance, bus and taxi operator ComfortDelGro (SGX: C52) generates around a quarter of its revenues from the UK and Ireland. It runs the Metroline bus service that serves commuters in London. But bus and rail operators could face a protracted period of fare-capping, should Labour follow through with its pledge to give commuters a fairer deal.
GuocoLeisure (SGX: B16) is almost all about the UK. Around 80% of its assets are in Britain. These include five deluxe Guoman hotels in London. It also includes 32 Thistle-branded hotels around the UK. A change of government could affect the pound, which in turn could affect the returns that Singapore investors could expect.
Other Singapore companies with exposure to the UK include hospitality specialist Ascott Residence Trust (SGX: A68U), property developer HO Bee Land (SGX: H13) and utility company Sembcorp Industries (SGX: U96). Some, it has t be said, could be affected positively, whilst other could be adversely impacted.
Scenarios both for and against a change of government can be made for almost every industrial sector that is exposed to the UK economy. These could even include companies exposed to the UK retail sector, if the controversial zero-hours contracts are scrapped.
But one thing is for certain. Companies have an uncanny knack to survive in almost any environment. That is because they are (or should be) driven by the efficient use of capital, which is why we should always look for businesses that can do that effectively, efficaciously and excellently.
A version of this article first appeared in the Independent on Sunday.
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