Advertisement

UK stocks calm as the election nears

Investors are taking a relaxed attitude, despite the uncertainty surrounding the general election – at least for the now.

739-FTSE-100

Investors often assume that election campaigns are bad news for stocks. But an analysis of how the UK market has performed in the past six elections suggests this may be a myth, according to Chris Dillow in the FT. "On average, volatility during electoral campaigns is lower than it is normally."

Advertisement - Article continues below

Average returns were worse, but mostly because the FTSE 100 dropped 9% in the 2010 campaign. Other campaigns were unremarkable. That said, in most of these campaigns the "result was a foregone conclusion". The current election will be more uncertain.

Quite, says Neil Woodford, theUK's best-known fund manager, inThe Daily Telegraph. "I've navigated my way through numerous elections as an investor many of them, quite frankly, unimportant for stockmarkets and equity asset prices", but "I think now we're in a slightly different place".

He anticipates a lot of instability and uncertainty even after polls close. "These are interesting times, but uncertain times, and you have to be wary as an investor in this market."

So far, there's little sign that most other investors feel the same way. The FTSE 100 remains near all-time highs, while UK government bond (gilt) yields are lower than they were at the start of the year. That seems "too complacent" given the risks, says investment management firm BlackRock. "A soothing outcome for markets is hard to imagine."

Advertisement - Article continues below

A Tory victory could pave the way for a British exit from the EU, damaging Britain's trade links and financialservices industry. A Labour triumph could see the implementation of policies perceived to be hostile to business. What's more, whoever wins, the resulting government is likely to be weak and struggle to pass the legislation needed to achieve its aims, making the outcome even less predictable.

That may be an exaggeration, says Dillow. "Neither main party can pursue grossly anti-business policies because to do so would cause companies to move overseas." So while the outlook may be tricky for UK equities, it shouldn't be so bad "that the FTSE 100 wouldn't rise if global equities generally do well".

Investors' phlegmatic attitude may be well-founded. But note that demand for new gilts issues has been weak while foreign holdings are dropping, says Swaha Pattanaik on breakingviews.com. It seems "those who have a choice" are giving the UK a miss until the result is clear.

Advertisement
Advertisement

Recommended

The British equity market is shrinking
Stockmarkets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
Beyond the Brexit talk, the British economy isn’t doing too badly
Economy

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
There are lots of reasons to be bearish – but you should stick with the bulls
Stockmarkets

There are lots of reasons to be bearish – but you should stick with the bulls

There are plenty of reasons to be gloomy about the stockmarkets. But the trend remains up, says Dominic Frisby. And you don’t want to bet against the …
17 Jul 2019
What gold, bonds and tech stocks have in common
Stockmarkets

What gold, bonds and tech stocks have in common

"Risk off" or "safe haven" assets such as gold and government bonds have been doing well lately. But so have riskier tech stocks. That seems to defy c…
10 Jul 2020

Most Popular

Can Rishi Sunak save the economy with stamp duty cuts and half-price meal deals?
UK Economy

Can Rishi Sunak save the economy with stamp duty cuts and half-price meal deals?

John Stepek runs his eye over the chancellor's £30bn stimulus package and asks if it's enough to get the economy back on its feet after months of lock…
9 Jul 2020
An economics lesson from my barber
Inflation

An economics lesson from my barber

On reopening his shop after lockdown, Dominic Frisby’s barber doubled his prices. It’s all part of the post-Covid inflation process – and we’re going …
8 Jul 2020
What gold, bonds and tech stocks have in common
Stockmarkets

What gold, bonds and tech stocks have in common

"Risk off" or "safe haven" assets such as gold and government bonds have been doing well lately. But so have riskier tech stocks. That seems to defy c…
10 Jul 2020