“The one thing we can be reasonably sure of is that the volatility in domestic markets and sterling will increase as a result of the election uncertainty,” said French.
“This increase in volatility is already beginning to manifest itself in option implied volatility across asset classes. From our vantage point, it is not clear that the market is pricing in the full extent of the uncertainty or a long enough window,” he added.
Volatility, particularly in sterling, could be more pronounced and last for a longer period of time after the election date than most expect, French explained.
Given how close the polls are French noted that taking ‘a directional view’ on the outcome of the election is ‘likely to hinge as much on luck as good judgment.’ He also expects the minor parties to play a significant role in proceedings after 7 May.
With this being so French recommends watching volatility markets very closely over the coming weeks and trying to cut ‘exposure to the directional outcome of the election’ within portfolios.
