Election and markets
Investors poised to invest if Johnson secures majority
Boris Johnson’s lead has been cut
Investors are poised to inject a wall of money into the UK economy if electors deliver a clear majority in today’s General Election.
An outright majority for Boris Johnson’s Conservative Party has already been priced in, boosting the pound and lifting mid-cap stocks on the London market to year highs.
The markets believe such an outcome would settle the Brexit debate and rule out the riskier options of Labour’s high borrowing and taxing agenda, as well as the uncertainty created by a hung parliament.
However, a YouGov poll on Tuesday evening showing a narrowing in he Tories’ lead over Labour has created some tension in the markets. A hung parliament remains a possibility.
The poll, which correctly predicted a hung parliament in 2017, is forecasting the Tories to win 339 seats (43%), a majority of 28, with Labour on 231 (34%) and the Liberal Democrats winning three more seats to take their tally to 15.
There has also been some contradictory statements from EU negotiator Michel Barnier who last week said a deal with the UK within a year was achievable and this week said this was less likely.
Therefore a ‘no deal’ Brexit still looms and could weigh on investors’ intentions.
A more immediate impact on market sentiment will be a decision on whether the US will go ahead with fresh tariffs on China on 15 December.
Any clarity created by the General Election and in the immediate weeks following will encourage investors to release pent-up plans which have been held up due to the uncertainty.
A Tory victory would be an immediate boost for UK-focused companies such as housebuilders and banks as sterling would rise, with $1.35 and above seen as an immediate milestone.
It would be less encouraging for dollar-earning companies such as Diageo, GlaxoSmithKline and miners such as Glencore.
AJ Bell investment director Russ Mould said: “Polling, which suggests a hung parliament is still a credible outcome after Thursday’s UK General Election, saw falls for sterling and UK-focused stocks as markets reacted to the threat of renewed uncertainty.
“The multi-national FTSE 100 trades higher but the more domestic FTSE 250 is under pressure as investors nervously await the results of the big vote.“
The chances of a Labour majority are priced below 5%, but Jeremy Corbyn could still get the keys to Downing Street if the other parties perform well and agree to support him.
Labour’s Brexit policy has been criticised as non-committal, but it would result in either reversing Britain’s exit from the EU or a softer Brexit which would be welcomed by business.
Jeremy Corbyn has pledged to compensate the Waspi women (pic: Terry Murden)
However, the party’s ambitious plans to nationalise swathes of industry, refund women denied state pensions and offer free services such as broadband, would see public borrowing rocket.
A Corbyn victory would have a negative effect on equity markets, not least because of plans to hike taxes on businesses.
Outsourcing companies such as Interserve and Serco would be expected to get less business from a Labour government and the defence industry would also expect lower orders.
The Lib-Dems, SNP and other minority parties could have a big say by keep Labour’s more plans in check.
As a condition of supporting Labour the SNP would demand a new referendum on Scottish independence, a move that may impact on investment decisions in Scotland given the added uncertainty it would introduce.