Dec

What are the implications for investors of this week’s election?

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General Election:

This is the week of
the election, and very likely a landmark one in the history of the
country. Everyone’s anticipating what the implications will be for
themselves of such an important vote on Thursday. If you are an
investor, and landlords are certainty that, then the implications
could be far reaching, but also far reaching for all of us!

Jeremy Corbyn, the
Labour leader, and Boris Johnson, the prime minister and Conservative
Party leader, have set-out their stalls in their manifestos and on
the hustings, and will do final battle at the ballot box come
Thursday.

Many of us will be
up all election night in anticipation, eagerly awaiting the final
result on Friday the 13^th of what is likely to be a
crucial vote, representing a parting of the ways; a cross roads of a
decision for the future of the country. There is certainly clear blue
water between the two main parties, decidedly radical in approach
from Labour, and a strong commitment to leave the EU as quickly as
possible from the Conservatives. But, there’s always the
possibility of another hung parliament, if tactical voting plays a
part.

Mired in
uncertainty

It seems like the
country has been stuck in political purgatory forever, mired in
argument and counter argument, and getting nowhere, while all the
time businesses and people are suffering because of the uncertainty.
Is it possible that the stalemate over Brexit and the uncertainty
surrounding U.K.’s future direction will end this week? After 3½
years of a battered pound, stagnant house sales and hammered domestic
stock prices, it would be good to have a sense of direction, whatever
course that may be, but how confident are you of that?

The opinion polls
are currently suggesting a victory for Prime Minister Boris Johnson,
the Conservative candidate, but Labour are catching up, and could
still surprise; they could yet form a government with the help of all
the other parties except the Brexit Party.

According to
investment website, marketwatch.com, the result of this
election could have a major impact, not just in Britain, but also on
world markets and currencies.

The historical
backdrop

For good or ill,
David Cameron, with a complicit Parliament, allowed a referendum vote
on a simple majority – stay or leave. To the surprise of much of the
establishment, the vote went to leave. Parliament confirmed the
commitment to leave by voting through Article 50, and then to secure
a better majority to help get a deal through, Prime Minister May
decided on an election.

The 2017 election
ended with Theresa May losing her small majority, then having to rely
on the Democratic Unionist Party to prop up her lame Conservative
government. It made getting legislation through, and especially
Brexit, an uphill task. Three failed attempts to get her compromise
Brexit deal through Parliament prompted May’s June 2019
resignation, a full three years after the referendum result for
leave, and no still sign of a resolution.

Boris Johnson came
in with a cast iron promise the country would be out by October 31st.
Against all the odds he struck a deal with Brussels on October 17th,
but despite this he failed to bring Parliament round, hitting the
same “brick wall” as his predecessor, as opponents of Brexit
successfully blocked and delayed the deal.

Even when Johnson
got MPs to finally voted for a second reading of the government’s
withdrawal bill — the Brexit deal — time was running out, and a
majority of MPs felt that the three days allocated to scrutinize the
bill was not enough and blocked it yet again.

With Parliament
effectively deadlocked, Johnson was forced to asked the EU for and
extension beyond his promised 31^st October deadline. His
repeated calls for an election to break the deadlock, resisted by
opposition parties for several weeks, eventually resulted in
capitulation. The decision to let the people decide by way of an
election was finally voted through on the fourth time of asking.

A new deadline for
exiting Europe has been set for the 31^st of January, so we
await the result of the election to see if Mr Johnson gets a chance
to keep his promise, or whether Mr Corbyn gets the keys to number 10,
and jets off to Brussels to negotiate his better deal. This to be put
to the people in the form of another referendum, to accept the
“better” deal or remain, while Jeremy Corbyn remains neutral on
the outcome.

What does all
this mean for investors and the economy?

A Stock Market
Almanack study shows that the Conservatives and Labour have won nine
general elections each between 1945 and 2010, with in eight out of
the nine years following a Conservative victory the FTSE All-Share
index rose, with an average 10.8% gain.

The market rose in
just three of the nine years following a Labour win, with an average
negative return of 5.8%. The same study showed that returns tend to
be negative in the month and week before an election, while returns
after an election tend to be low.

But this time could be different; none of those previous elections involved Brexit with its consequences for equities and the pound, and none featured a Labour government in waiting with the most radical socialist policies the party has ever put forward.

Sterling has been up and down like a Yoyo in recent weeks as investors have reacted to the sways of the latest opinion polls. The pound dropped at the end of November after two election polls showed that Boris Johnson’s lead had narrowed, demonstrating investors’ fear at the prospect of a Labour government under Jeremy Corbyn.

However, a YouGov
poll that successfully predicted the outcome of the 2017 election
called a Johnson win with a 68-seat majority, sending the pound back
up above $1.29. Another more recent poll cut Johnson’s lead by
half, sending the pound back down again at the prospect of a hung
Parliament, when no party reaches the 326 seats needed for a
majority.

The outcome as they
say is in the “lap of the Gods”, but one thing is for certain; a
small majority for either of the main parties would mean another hung
Parliament, it would diminish the chances of breaking the Brexit
deadlock. Such an outcome would mean the return of uncertainty and
the prospect of a no-deal Brexit or no Brexit at all — it would
send stocks prices, house prices and the pound plunging. It may also
see the break-up of the United Kingdom.

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