The FTSE may have been on something of a downward path since smashing the 7,000 barrier last month. The question is, have we already seen a peak for the index for this year and so get out now before things take a tumble?
Research by Axa Wealth found that in four of the past five elections (1992, 1997, 2001, 2005 and 2010) the movement of the FTSE All-Share has been markedly more dramatic in the three month window following the election, than in the three months before.
For example, the index was essentially flat in the three months prior to the 2001 and 2005 elections, though fell 13% in the weeks after Prime Minister Tony Blair’s second term was announced, and climbed 10% after his third poll win.
“Certain sectors seem to thrive on the political uncertainty that an imminent election engenders,” says Axa Wealth CEO Mike Kellard.
For example, he adds: “Mining stocks strongly outperformed the market before three of the past five elections, remaining in line with the market in one of the years and only underperforming marginally in the other.
“On the other hand, financials perform most strongly in a more settled political environment, beating the market in three months following four of the past five elections, and only returning slightly less than the market in the other year.”
Given that even political experts seem baffled by this year’s opinion polls, you might think there’s even greater potential for adverse market movement next month. But seeking solace in international equities may not help much either, according to Coutts’ UK CIO Alan Higgins.
“After the strong run in European and Japanese equities since October last year, valuations are looking stretched in some markets,” he explains.
“What’s more, our analysis shows that the ‘Sell in May’ rubric has a decent track record and, if history is anything to go by, April could be a good time to trim equities. We think it makes sense to reduce overweight positioning in global equities and focus on areas of better value – markets or sectors that have lagged in the recent rally and should have greater upside.”
So where are these areas of better value? Higgins highlights global banks, across US, Europe and Japan which should benefit from strong consumer spending over the next two to three years.
“Credit growth is picking up in all three regions, and falling unemployment should boost mortgages and lending,” he says, adding that banks look inexpensive by historical standards, with price-to-book values (assets minus liabilities) in the 0.8 to 1.2 range.
The UK General Election is one of the big 5 risks impacting your portfolio’s returns today. Find out the rest here.
