Financial markets don’t generally like Labour, says Andrew Ellson in The Times. Its tendency to “raise taxes and increase regulation is anathema” to them. Labour is certainly rather bad for stocks. All the stockmarket’s post-war inflation-adjusted gains have been achieved under the Tories. Since May 1997, the FTSE 100 is down by 15% in real terms.
As for the short-term impact of elections, there is no clear pattern, says Alice Ross on FT.com. There have been 11 since 1966, of which Labour has won six. The market rose on three occasions in the year after Labour won, but also fell on three others. After a Tory victory, the market rose in three of the five years, and fell in two. What about a hung parliament? That’s a real possibility this time, although the spread-betting markets continue to predict a narrow Tory majority. There has only been one, in 1974. It was followed by an 8% drop in the FTSE All-Share. Hardly enough evidence to go on.
Sure, the last three elections have had a “muted” impact on stocks, as Nomura points out, but this vote will be a different story. Our spiralling national debt is hanging over markets “like a sword of Damocles”, says James Bartholomew in The Daily Telegraph. So this election looks likely to affect share prices “more than at any time for 20 years or more”. The Tories are committed to “earlier, more radical action”. If they win, markets will be “reassured”. “I would expect shares to rise by, say, 10%…over a few months.” But a Labour victory or a hung parliament could see shares fall by 5%, reckons Bartholomew.
An indecisive result could be bad news for sterling, says Ben Yearsley of Hargreaves Lansdown. But many firms in the blue-chip index derive their earnings from overseas. As such, they “are driven more by international events”. With over 70% of FTSE 100 earnings stemming from abroad, a weak pound caused by a hung parliament or Labour victory would be good for the FTSE 100, says Ellson.
Yet “nobody can be certain” of the impact of the vote as “there are so many other variables at play”. In the medium-term, says Edward Bonham-Carter of Jupiter Asset Management, “international forces will have a far more significant effect” on the economy and market.