Voters can be a fickle bunch and awkward TV appearances coupled with a fair bit of question-dodging have seen the Tory poll lead over Labour narrow significantly, bolstering the left-wing party’s hopes of adding a few red rosettes to the Commons’ benches.
With just a matter of days until voters hit the polls, the investment world has begun to weigh up what a weak Tory result might mean for portfolios.
It is widely agreed that a solid Tory win would settle markets, and perhaps lead to a recovery in sterling before any Brexit shocks come into play.
However, while most still expect the Conservative party to win the election, a recent YouGov poll has forced people to consider what could happen if the country wakes up to result of a hung parliament, or Labour majority, on Friday morning.
If Corbyn managed to scrape together the 326 seats needed to form a government, both the equity market and sterling outlook “would be instantly felt to the downside”, according to GAM’s investment director Charles Hepworth.
“The prospect of a government tax raiding UK corporates to support their party’s spending plans would instantly be felt in stock prices,” he said.
“The increased need for additional borrowing would push yields higher in government bonds, and while this might attract some overseas buyers in the interim and support sterling.
“It is unlikely that this effect would last given the higher borrowing outlook on government finances and more uncertain fiscal position.”
Hepworth added sterling would fall under a Labour government, and the belief that the pound will bear the brunt of a surprise result is widespread.
Andrew Belshaw, head of investment management at Legg Mason-affiliate Western Asset Management, said: “A smaller Conservative majority or even hung parliament would likely lead to currency weakness due to an even more uncertain path for Brexit negotiations.
