Wealth managers shares fall amid Starmer political storm
A host of the City’s top listed wealth managers suffered sharp sell-offs on Tuesday morning as questions over Starmer’s future caused government borrowing costs to soar.
Investors have been on alert since fears of a rebellion against Starmer began after last week’s local election results, with the spike in gilt yields now triggering a sell off.
The ten-year yield rose over 11 basis points this morning to over 5.1 per cent, with the 30-year gilt yield also spiking by more than ten basis points.
The sharp rise triggered the fall in share prices, which comes as over 70 MPs have called for Stamer’s resignation, leaving his position as prime minister hanging in the balance.
Wealth managers would fall victim to the likely market volatility a resignation would cause, with gilt yields rising and the pound falling if a more left-leaning minister takes the top job, putting pressure on investment portfolios.
Share price tumble
St James’s Place suffered a 2.6 per cent fall, dropping to 1,175p, with shares down 17.4 per cent this year to date.
Meanwhile, Quilter saw shares drop 2 per cent and FTSE 250 company Rathbones reported a 1.4 per cent drop to 1,936p.
Managers who serve the mass market also saw a decline, with AJ Bell dropping 1.3 per cent and Aberdeen falling 1.6 per cent, hurting their rallies caused by more people opting to invest.
Chris Beauchamp, Chief Market Analyst UK, at IG said: “There is no clear plan for what comes next, but markets are already pricing in a new PM who will open the floodgates on spending despite the UK’s dangerous fiscal situation.
“A new PM will find it very hard to resist calls to spend more money in order to shore up their embattled party. Much of the case for the UK as an investment destination rested on the Starmer/Reeves commitment to fiscal rectitude, but it is unlikely that a new leader from the left of the party would feel bound by such promises.”
The bond market turmoil has also caused a Schroders bond-fund manager to confirm the firm is steering clear of UK debt, and is unwilling to resume its previously bullish view on gilts.
James Ringer said in an interview with Bloomberg: “We’ve seen this play before where the UK looks cheap and it only gets cheaper.
“We’re happy to be on the sidelines.”
Fragile fiscal position
Neil Wilson, investor strategist at Saxo UK, said: We could see a blowout in longer-dated gilts if this turns into a dogfight– political, fiscal and inflationary risks will rise.
“Markets tend to dislike a lack of certainty over who runs a government; the fiscal position is already fragile and likely to become worse should a left-leaning ticket prioritise spending, and that this makes inflation stickier.”
His words come as the Tribune Group, a group of 100 soft left Labour MPs, headed by former transport secretary, lobbies for a reset of the fiscal framework.
Haigh said the fiscal policy in the UK is “resolved in favour of caution” and added Britain’s “fiscal and institutional framework” is “unfit for purpose” as she called for major tax rises on wealth.
This would leave wealth managers scrambling to align client needs with potential liabilities, such as hike in capital gains tax, and a potential restriction of tax relief on high earners.