If you thought Brexit and President Donald Trump were seismic electoral shocks, brace yourself for June 8. A victory for Prime Minister Jeremy Corbyn would be off the scale.
Corbyn surge
We live in strange times, where anything can happen. Safe and stable Prime Minister Theresa May started this campaign 20 points ahead, but the gap has narrowed to a soggy and sorry three points, according to this morning’s poll in The Times. Incredibly, that is within the margin for error. It seems the many, not the few, could be lining up to vote for the most left-wing Labour administration in history.
I still cannot quite see that happening, but these days you never know. The political world is shifting beneath our feet once again. The ‘coalition of chaos’ is a distinct possibility. What on earth should investors be doing?
Marx and Spencer
You might expect the FTSE 100 to plunge at the prospect of Corbyn’s Marxist sidekick, shadow Chancellor John McDonnell, running the nation’s finances. Yet it hasn’t. Despite this morning’s poll, and May’s humiliating no-show last night, the benchmark index is currently up 0.47% to 7,555, close to its all-time high. Royal Mail, in line to be nationalised, is up 0.5%. National Grid, also threatened, is merely flat. British Gas owner Centrica is up 0.3%. What does this mean?
It probably suggests that markets still do not believe that Corbyn can win. The City is banking on shy Tories showing up in force once again, proving pollsters wrong as they did in 2015. Either that, or a narrow Corbyn win simply doesn’t scare them as much as the Tories would like. That’s despite the fact that businesses would face a major hike in corporation tax, resurgent trade unions, and a rash of nationalisations. Executive pay would be taxed, squeezed, and taxed again. It will hurt. However, a Labour government is also likely to mean a far softer Brexit, with continuing access to the EU single market. Business will prefer Brexit-lite.
Hold on tight
Corbyn’s shock poll ratings could begin to rattle investors if sustained in the final days of the election, and the FTSE 100 could be in for a serious wobble. Nobody has priced his victory in – but that could change. Keep a close eye on the index next week, it could be a buying opportunity, assuming that you expect May will ultimately secure an ill-deserved win. Markets are likely to rise on the news, although not ecstatically, with Brexit talks starting within days.
The aftermath of a Corbyn victory on 8 June could also be a buying opportunity, for the brave. A sell-off is a racing certainty, so choose your targets carefully. Markets hate uncertainty and we have no idea what Corbyn would mean for the UK economy. Higher taxes and heavier regulations will be a drag on UK company performance. On the plus side, a Labour win might make those Brexit talks look less fearsome and overseas earnings will be worth more if the pounds sinks. A buying opportunity, yes. Whether you should take it is a different matter.