"The winds of misery whipping the Square Mile are reaching gale force", says Lucy Burton in The Daily Telegraph. With few trusting the polls, bankers and investors don't know whether an "unprecedented hurricane" in the form of Jeremy Corbyn will be hurtling their way on 12 December.
Political uncertainty hasn't had much impact on stocks so far, however. The FTSE 100 and FTSE 250 finished last month barely changed despite some dramatic swings up and down. Shares seemed to be more affected by Chinese data and Federal Reserve announcements (see page 5) than developments in Westminster.
Shareholders tend to vote Tory
As for previous elections, research by investment platform Hargreaves Lansdown in 2015 found that since 1970 the stockmarket has on average performed twice as well when the Tories are in power compared to Labour. The market delivered a 270% gain during Margaret Thatcher's 11 years in Downing Street.
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Yet it was James Callaghan's 1976-1979 Labour government that delivered the best annual returns, with the market rising 18% per year and 66.7% overall during his tenure. More recently, the FTSE All-Share is up by a lacklustre 7% in the four-and-a-half years since David Cameron's 2015 win.
Deeper analysis shows that markets are driven by big-picture, global economic patterns much more than by the shorter-term policies of British politicians. As Laith Khalaf of Hargreaves Lansdown puts it: "Economic and company performance are much more important when it comes to the direction of the stockmarket, and these tend to rise over the long term."
That said, this time investors are watching the polls more closely than usual. Britain's election is making "Halloween ghouls of capitalists", writes Neil Unmack for Breakingviews.
Jeremy Corbyn kicked off his campaign last week with an "unusually personal philippic against the likes of retailer Mike Ashley and hedge fund manager Crispin Odey". Britain's business classes will have more than cold weather to brace for this winter.
Some financiers are understood to be so nervous about a Corbyn government that they have contingency plans in hand to leave Britain altogether, reports Burton.
The Corbyn trade
One big banking investor says "he doesn't know one chief executive who wants Corbyn to win". But "any clear result is better than the current gridlock, reckons Christian Schulz of Citi. A Labour-led Remain coalition would be "unlikely to implement their more radical policies". Corbyn "scares the City of London witless", says Lex in the Financial Times. Short positions in some of the party's favoured targets, particularly utility and real estate businesses, are likely to do well if Labour delivers a Christmas upset. On the other hand, multinationals with lots of overseas earnings would be expected to outperform. Manufacturing stocks have little to fear given the party's fondness for the sector. Investors have been warned.
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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.
Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.
He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.
Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.
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