Facing the most unpredictable outcome since 1992, which saw John Major lead the Conservative Party, market commentators are in unanimous agreement that the UK market “hates uncertainty”.
But while Allianz’ CIO, UK equities said there is a general expectation a Tory majority outcome might be the most business and stock market-friendly, with the gaming sector and energy companies performing particularly strongly, it almost certainly would bring an EU referendum, with or without a Ukip partnership.
“The bookmakers Ladbrokes and William Hill have, for example, spent much of the last 18 months under a cloud of uncertainty, as the Labour party has suggested that it may restrict the use of highly profitable betting machines.”
Similarly, he said energy companies, such as Centrica, have been hit hard by frequent interventions of Ed Miliband.
“Who has claimed – unfairly, in my view – that these companies are profiteering at the expense of the consumer.”
When Major scraped through, despite Labour being ahead in the polls, the stock market rallied 15% in the two months following, with financials, house builders and retail outperforming.
But Gergel said it was less clear what would happen under a Labour-led government.
“A clear Labour majority would probably be poorly received by the markets, and may be seen as the most anti-business outcome, but to what degree is unclear as their hands would be tied by a need to demonstrate fiscal responsibility.
“We would probably have to wait until later in the year for the dust to settle to assess their policy actions. ‘Shoot first, ask questions later’ is often how the stock market behaves in these situations – meaning any company or sector potentially in the firing line is not likely to perform well.”
Gergel has expressed concern over new targets, adding: “Any sector that is high-profile and consumer facing could be at risk – like tobacco, the water companies, mobile or fixed line telecommunications firms.
“Importantly – though ironically – a result which leaves a coalition or minority government might actually produce the best medium-term result for the stock market. While there would undoubtedly be volatility in the early days as politicians negotiate for their particular policy initiatives, this could settle down over time.”
