A hard to call General Election looms over UK markets. If Boris Johnson wins an outright majority the UK will leave the EU by early 2020, ushering in “Thatcherite” policies to make the British economy the “Singapore” of Europe.
A raft of business-restrictive EU regulations will be binned. It will unleash animal spirits and spur economic growth as the UK pivots from the moribund economic basket that is the EU to the dynamic economies of the Americas and high-growth Eurasia, an area with two thirds the global population and three times more middle class consumers than the US And Europe combined.
Britain could also become a favourite destination for investing, with an expected huge inflow of foreign money.
What does this prospect mean for UK income investors?
As it happens, British equities look cheap as chips due to Brexit uncertainty, but these bargains may not last much longer. On average, UK blue chips offer significantly higher dividend yields than their overseas counterparts with a raft of FTSE components yielding 6% or more. On a relative value basis, the UK market looks undervalued by about a third.
If Boris does pull it off, UK equities will rally, so the opportunity to acquire quality shares now at a big discount and lock in attractive dividends now is too good to miss.
If he fails, Britain will continue to tick over as it has for the past three years. On a risk/ reward assessment, there is more upside on a Boris win than there is downside on a hung parliament. And all bets are off if Labour wins.
This article first appeared in Investment Week on 2 December 2019.