Who Is UK PM Rishi Sunak And How Will His Economic Plan Impact US Investors?

Finance

Key Takeaways

  • The UK has another new Prime Minister, with Rishi Sunak one of their richest ever leaders with a household wealth between he and his wife of over $830 million.
  • He’s also the youngest ever Prime Minister, the first of Asian-descent and the first Hindu.
  • Sunak takes the helm at a time of economic crisis in the UK, with limited options to navigate out of this in the short term.
  • For US investors, the prospects of other countries can provide opportunities for unique methods of generating investment returns.

The UK has now had three Prime Ministers in the space of two months, including Liz Truss who managed to secure the record for the shortest serving PM at just 50 days in office. After a swift party election, the man who originally lost to Truss has now been given the top job.

It’s somewhat comforting to see that no country is immune from political turmoil, but the whole thing has been pretty confusing. It’s not impacted the US stock market, but bond markets have been very unsettled as a result.

The hope is that with fiscal consertive Sunak at the helm, that the situation will begin to calm down.

Rishi Sunak is an incredibly interesting political figure. An ex-Goldman Sachs banker, as well as an alumnus of Oxford University in the UK and Stanford in the US, he and his wife have a household net worth of over $830 million.

At 42 years old, he’s also the youngest Prime Minister ever, the first of South-East Asian heritage and the first Hindu.

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A brief history of Rishi Sunak

Sunak was born in the UK to a middle class household. His father was a GP in the National Health Service (NHS) and his mother was a pharmacist who would eventually own and operate her own pharmacy in the UK.

While Sunak goes to great lengths to paint a modest picture of his life as a child, the family were obviously comfortable given that he attended Winchester College. As one of the most prestigious high schools in the world, it charges annual fees of around £46,000 (USD$52,750).

From there Sunak went on to study at Oxford University, achieving a first class degree before completing an MBA at Stanford University.

He then went on to work in investment banking for Goldman Sachs, before moving to a London based hedge fund where he would become a partner in 2006. He moved on to a number of different hedge funds, including a stint at Theleme Partners in California, before winning his first seat in parliament in 2014.

While amassing wealth of his own during his career in high finance, in 2009 he married Akshata Murty, the daughter of Indian billionaire N.R. Narayana Murthy, the founder of tech giant Infosys.

The company currently has a market cap of around $77 billion, and Sunak’s wife Akshata Murty owns 0.91%. To save you the math, that means she’s worth around $700 million. So while many references are made to the Sunak’s household worth being close to $1 billion, it’s Murty who’s doing much of the financial heavy lifting in that figure.

Even so, the guy isn’t short of a dollar. That’s why many have been questioning whether he can truly relate to the struggling British public, who are grappling with a cost of living crisis and stubbornly high rates of inflation.

The UK economy is in a tight spot right now

Like much of the world, the UK has been facing some serious economic headwinds. Inflation has been at similar levels to the US, energy prices in particular are incredibly worrying leading into winter and they’ve had the added complications that have come with leaving the EU.

The country has narrowly avoided an official recession so far, with GDP growth of 0.7% in Q1 and 0.2% in Q2. This is trending downwards, with the Office of National Statistics stating that growth had fallen to 0.1% in July and contracted -0.3% in August.

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Issues of low growth and high costs aren’t unique to the UK. Most countries around the world are dealing with similar problems and many have been worsened as a result of the covid pandemic.

The political situation in the UK is making the issue much more difficult, particularly after Liz Truss’ failed ‘Plan for Growth’ spooked the markets to such a degree that the UK’s central bank, the Bank of England, had to step in to secure the bond markets.

Rishi’s plan to fix it

While the appointment of Sunak has calmed the markets, it makes it very difficult for him to make changes that could boost the economy. He is expected to announce a wide range of tax hikes as well as cuts to government spending, in a pattern that is in direct opposition to the plan originally proposed by Liz Truss.

This mandate is likely to keep markets steady, but is going to make the situation for the British economy even worse, at least in the short to medium term.

The full details of Rishi Sunak’s economic plan will be announced on November 17th. It had originally been scheduled for Halloween, though with the short period of time he has been in office this has been pushed back to allow time to finalize the program.

It is not expected to be a happy day for most Britons.

What we do know is that Corporations Tax will be increasing from 19% up to 25%. This will take the UK from one of the lower taxing nations in Europe to in the middle to higher range. Some analysts are concerned that this will further dent the attractiveness of London as a center for business, after it has already been dealt a blow with the exit for the European single market.

Why do we follow this?

But why do we care? The UK is a close ally to the US with many historical and cultural ties and while it is the sixth largest economy in the world it still only makes up around 3% of the global economy.

The reason is that while investors will often look only to the US when deciding where to place their money, there are significant opportunities to be had by casting a wider net. At times there will be other countries which look likely to outperform the US, with investments overseas having a greater return potential for investors.

Right now, we don’t think this is one of those times.

However, that also provides opportunities. At the moment the US has a more favorable growth outlook than much of the rest of the world. We’ve already started to see that play out in the way the US dollar has gained so heavily against many other major currencies.

We’ve packaged this play into our US Outperformance Kit. The way this works is by taking a long position in the US, while at the same time taking a short position in the rest of the world. This is weighted broadly in line with the size of the rest of the world’s economy, which means it’s made up mainly of countries in Western Europe, plus Japan, Hong Kong and Australia.

By going long and short at the same time, investors profit off the relative change between the US and the rest of the world. It means that even if the global market trends sideways or even continues to fall, returns can be made if the US holds up better than the rest.

The trade is automatically rebalanced every week, and it’s offered on a Limited Edition basis. That means that when we believe the trade no longer makes sense, we close it for you.

This kind of sophisticated pair trade is usually only reserved for the high net worth Wall Street elite, but we’ve made it available for everyone.

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