What does the British election mean for Arabian investors?

On May 6th Britain will elect a new government and prime minister. What will that mean for Arabian investors with their money in UK real estate, shares and sterling?

The writing is really on the wall for anybody who cares to read it. The UK will need to borrow $250 billion this year. That is clearly not sustainable as a long-term economic plan, whatever lies may be forthcoming from the lips of those desperate to be secure election over the next few weeks.

Austerity coming

Not promising austerity is not going to be the same as actually avoiding it. Britain is going to have to raise taxes and cut public spending sharply to bring down its deficit over the next few years.

So investors face further devaluation, after a 25 per cent fall recently in the value of the pound; an overvalued property market supported by low interest rates that realistically cannot be sustained; and a stock market whose valuation seem oblivious to the global economic slump.

Would it help if the hapless Mr Brown is ejected by a country which has actually never elected him? He inherited the job from his predecessor Tony Blair and accepted a poisoned chalice as little has gone right since then.

Traditionally stock markets rise under Conservative governments. But austerity measures are hardly stimulatory and this new dawn might well be postponed until the first light of recovery appears. Also the pound might be slightly less vulnerable but real estate still looks set for a downturn as interest rates rise.

Hung parliament

The worst outcome for investors would be a hung parliament with Mr Brown hanging on to his job but unable to secure a parliamentary majority to form a government on his own. Nobody would have a clue what to expect and markets hate uncertainty.

Then again Mr Brown with his own majority would be caught by his own election promises and be doomed to try to save the British economy by further borrowing and ultimately inflation. Foreign investors would see their portfolios decimated by the devaluation of the pound and a crashing stock market.

The brave might see that as the moment to snap up a bargain home in Belgravia. But whoever wins the UK election face an appalling economic outlook, and the message for foreign investors can only be to wait for desperate times ahead to snap up assets at very low prices.