Perspectives of abrdn management on the new government’s economic policy and its impact on the market

British shares

Ben Ritchie, head of developed markets equities at abrdn, says: “This clear win provides the clarity and stability that equity markets need in an increasingly volatile world.

“Labor’s pro-growth agenda is crucial to providing the tax revenues needed to fund public services, with private capital playing a key role in supporting investment.

“If the new government gets it right, companies with significant exposure to the UK economy should be likely winners – a boost, particularly for FTSE 250 and FTSE Small Cap companies. With a bit of patience, investors could eventually be rewarded.

“A key priority for the new government should be to make UK shares more attractive to domestic and international investors.

“One of the quickest and most effective ways to achieve this is to abolish the civil duty on UK shares, which would make the UK more competitive, reward savers and attract much-needed foreign investment.”

Private markets

Nalaka De Silva, Head of Private Markets Solutions at abrdn, says: “Ensuring economic growth to support public spending is a key priority for the new government, with planning reform set to be a key focus in its first 100 days in office.

We are pleased that planning reform has become a core political priority and hope that this will translate into rapid, tangible reform and funding not only in the short term but also in the long term, with vision and stability.

“This is desperately needed to address the deep-rooted problems in savings and pensions markets. By supporting the flow of capital into productive sectors, the UK’s comparative advantage can be maintained.

“In line with productive finance initiatives, there is a need to direct more capital into domestic assets to support economic growth.

“We believe that urban regeneration through large-scale real estate projects, specialist capital (growth capital and venture capital), social and economic infrastructure, including renewable energy project assets, plays an important role in stimulating the economy and providing diversification for investors.

“We would like to see firms and trustees have the opportunity and incentive to diversify their pension asset allocation across a wider range of equities and alternative assets within an appropriate risk framework.

“The government is encouraging the investment management industry to develop products and tools that provide access to private markets for long-term savers.

“In the first 100 days, we expect such capital allocations to be enabled by continued pension reform, which will allow for the sharing of accrued benefits with corporate sponsors if plans continue to operate, rather than moving to an insurance buyout.

“We anticipate further action on cost disclosure in the investment fund sector and hope to see more incentives for long-term savers.”

Closed-end funds

Christian Pittard, Director of Closed-End Funds and Managing Director of Corporate Finance at abrdn, says: “The new government must urgently address the issue of changing the cost disclosure rules that are holding back the growth of the closed-end fund sector in the UK.

“There is nothing to lose and everything to gain. This comes at no cost to the public purse, while increasing investor confidence and investment in the UK.

“Closed-end investment funds are a key source of capital for large-scale real estate, specialist capital, infrastructure and renewable energy projects that policymakers agree are essential to driving the country’s economic growth.

“Misleading and unhelpful rules on fund cost disclosure are blocking investment in these productive areas and need to be addressed immediately.

“This has affected investor sentiment to such an extent that the information disclosed may negatively impact investment decisions.

“Reform of the UK capital market cannot be achieved without resolving this conundrum, given that the sector accounts for around 36 per cent of the FTSE 250 index, according to the London Stock Exchange.

“At abrdn we also believe that capital market reform should go further and promote a national culture of saving and investing that would provide even more capital to expand our economic pie.

“Stamp duty on UK shares and UK-domiciled investment trusts has disrupted capital flows, putting the UK at a competitive disadvantage compared to other international nations, and has further hampered economic growth.

“By cutting this unfair and disruptive tax, the new government could make great strides in creating the healthy, competitive investment environment the country so desperately needs.”

Pconnections

Alastair Black, head of savings policy at abrdn, said: “We were pleased to see the Labour manifesto commitment to a pensions review, recognising the importance of both delivering better pension outcomes and encouraging investment in the UK.

“The Pensions Review gives us a chance to take a step back and implement changes thoughtfully, taking into account industry feedback.

“Current levels of contributions will not deliver adequate retirement outcomes for most. We have previously called for minimum auto-enrolment levels to be significantly increased and ideally doubledD until 16%.

“Setting a clear roadmap and timetable to achieve this level will help deliver adequate retirement outcomes for more people and increase the amount of assets available to invest in the UK.”