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Perceptions of political risk #finance

The election result has given us a result that appears to be perceived as increasing the political risk for investors. The stance towards negotiations with Europe was to go into it with a tough approach. The approach now could be softer and more conciliatory which might actually be beneficial. The risk for investors hasn’t really increased it has probably decreased but investors traditionally lean towards the Conservatives. We small investors are more inclined towards a liberal view and small investors are often ethical investors. While small investors wouldn’t welcome Labour raising corporation tax they don’t want austerity either. The political risk for investors may be perceived as being higher but over the summer we could see the actual risk changing in favour of small investors. We might even see a small increase in interest rates.

political risk

Banking

The political risk for banking is perceived to be higher and this is reflected in the 2% cut in Lloyd’s Banking Group’s share price this morning. However, we can see that there is no chance of Labour’s financial transaction tax being implemented. We might see an interest rate rise and we know that Lloyd’s is closing branches and increasing efficiency. The increased risk associated with Brexit is priced in, so what’s not to like? I see Lloyd’s as an opportunity to buy now and at 69p I see a potential 50% upside.

This, from Reuter’s this morning: “The worst outcome for banks, especially Royal Bank of Scotland, would be if Corbyn is able to form a coalition government with another party, or win a follow-up election.”

The 3% chopped off the share prices of banks this morning is a result of such speculation and presents a buying opportunity on perceptions of political risk that are probably wrong.

Hope for the best

Some small investors will buy on today’s dip while others will batten down the hatches and see the value of their portfolios get trashed over the course of today. What will happen next week? We have no idea, so we just have to hope for the best. The best and most likely will be a Conservative government supported by the DUP. The worst case scenario in my humble and biased opinion is not a Labour government but a resignation by Theresa May. If Theresa May resigned we could see a lurch to the right and more austerity trashing the economy once again. If Labour forms a government I think we could see inflation rise but they would need an ally and that would moderate their policies. Moderate government always benefits small investors.

Political risk

How am I doing? Well, I knew the political risks were higher and so I reduced my portfolio by around 30% selling a few that were giving me a good return. I am left with a portfolio with too much on the AIM market and vulnerable to risk. I am about 1.5% down today and that follows on from falls in value over the past month. I expect that to change over the coming months. I think all the political risk has now been priced in and I will see prices slowly rise over the summer. The AIM shares could hold a few surprises. Solo Oil has some great assets and the price was basically trashed by a decision to put more into Helium One. I think they could have been dumping their shares into the market too. Neil Ritson more or less promised a share price of 1p or better this year; that is a 200% upside. Their assets have come from Ritson’s expertise in geology. They need business expertise and improvements in investor relations. That could send the share price soaring.

That’s all for today. If you would like to subscribe to my blog and receive an email each time I post just enter your email address at the top of the sidebar or follow me on Twitter for updates. You can also find links and more information on my Facebook page.

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