Anyone who says they can predict the future of British politics at the moment is overconfident, ignorant, or trying to sell you something. The best we can say is that the relative probabilities of each outcome seem to be unusually balanced – or in plain English, that anything could happen.

Jeremy Corbyn becoming the next tenant of No.10 is one possibility. Concerns from the business community about the impact of a Corbyn administration have been rumbling for years now, but mostly remained on the periphery as Labour languished behind the Tories in the polls. In the current febrile environment, these fears suddenly look much closer to being realised.

The many policies proposed by Corbyn’s Labour have been discussed at length elsewhere. The key focus is on a significant redistribution of money and power from capital to labour, increasing public spending, and nationalisation of industry.

“Corbyn-proofing” a portfolio is not a simple task, but there are some actions one can take:

  • Reduce exposure to sterling, instead investing primarily in dollars, yen, and other core markets. The euro is an option, but the fortunes of the UK and the Eurozone are intertwined. The UK has its Brexit problem and Europe its growth problem, and the impacts will be shared between them. Corbyn’s enigmatic Brexit stance only creates more uncertainty for both sides.
  • Invest in global firms, rather than UK-based. Rising corporation tax and plans to compel domestic companies to dilute and distribute shares to employees do not make for booming share prices.
  • Despite plans for significantly increased spending and borrowing, gilts aren’t necessarily a must-sell. They are relatively cheap when compared to other major European markets. Despite Brexit, the Bank of England has not joined the rest of the world in forecasting rate cuts. Moreover, increased fiscal spending may be done via “People’s QE” in conjunction with the bank, and may not pull the rug out from valuations. The likely capital flight from the UK under a Corbyn government will slow the economy and support gilts.
  • Index-linked bonds may seem a sensible play against the prospect of inflationary fiscal policy, but long linkers have collapsed of late, courtesy of the Chancellor committing to a review of the flawed RPI measure. Linkers perform well on weaker sterling, but the pessimism around Brexit currently priced means the bias for sterling in the near term is upwards, as long as ‘no deal’ remains unlikely.

Ultimately, attempts at Corbyn-proofing are inextricably tied up with Brexit. Whilst no deal Brexit seems less likely at the moment (though more likely than anyone expected a year ago) it would be a brave person who sees Corbyn seeking a revocation Article 50. Corbyn’s instincts are anti-EU and anti-business elites; that’s a tough environment for UK asset performance.

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