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The UK Snap Election
Jun 13 2024
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By
Jonty Brooks
The UK’s political parties are now in full campaign mode following Prime Minister Rishi Sunak’s announcement of a general election scheduled for 4th July. With the election fast approaching, commentators and news articles are naturally speculating on what the outcome will be and what this means for financial markets.
History as a guide
For anyone looking for answers, history tends to be a good starting point and using data for the FTSE All Share Index, since 1985 we can see that regardless of who is in power, UK stocks go up in value over time.
As you can see, over the last 4 decades, an investment of £100 into the UK stock market would have grown to £1,872.30 which is an annualised return of almost 8%.
When we drill further into the data it reveals that over this period, when the Conservatives were in power the FTSE All Share Index generated an annualised return of roughly 9%, while when Labour was in power it was just above 5%.
However, it is very important to highlight that during the time Labour was in power, the UK market, and the global stock market, were impacted by the Dotcom Bubble in 2000 and the Global Financial Crisis in 2008 (highlighted in the chart above).
Neither of these occurrences was the direct result of Labour’s policies and were global events. Given the magnitude of these events and their timing, they can account for some, if not all, of the difference in the annualised returns between the two parties.
Short-term temptations
Despite the temptation, it is well known that successfully trading around binary events such as elections is an incredibly challenging task.
To start, you must correctly predict the election outcome, not an easy task if you consider all the upsets and surprises we have had over the last decade.
Then, even if your prediction is correct, you must accurately anticipate how markets will react to the result. With 24-hour news and data so quickly digested by markets, most events are priced in. Anything that is a surprise and therefore not priced in is, by definition, very unlikely to be predicted in advance anyway.
As discussed in our recent article, “The Year Of Elections”, the data in America also suggests that the relationship between elections and what happens in markets shows little correlation and it is global economic events (inflation, interest rates, market valuations and liquidity) that have a far bigger impact.
Despite this, elections do increase the level of uncertainty in financial markets, so it is not unusual to see higher levels of volatility in the periods surrounding them. So, though more volatile markets should be expected over the next few weeks, making long-term investment or wealth-planning decisions in response to this would be unwise.
Written by Jonty Brooks
General Disclosures: This article is based on current public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. The information, opinions, estimates and forecasts contained herein are as of the date hereof and are subject to change without prior notification. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. The price and value of investments referred to in this research and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur.Cornwall
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