Britain is now set for a December 12 general election. 650 representatives from 650 different constituencies will be chosen as Members of Parliament and take their seat in the House of Commons.
I have recently studied a wide range of national newspaper archives to get a better feel for investor sentiment during past general elections. Although mine is not a scientific conclusion, the FTSE 100 share index is likely to be quite choppy in the next few weeks leading up to the election.
The only certainty is the election day
Stock markets despise the unknown. Once an election date is announced, various opinion polls begin to dominate the press and investor mood can ebb and flow daily. History reminds us that every UK election since 1922 has been won by either the Conservative or party.
In previous elections, the City has generally taken a gloomy view of how stock markets would react to a Labour win. And we are currently hearing similar echoes. However, Brexit complicates how shares may fare on the morning of 13 December.
Most businesses and industry analysts agree that leaving the European Union without an acceptable deal that works for all of the UK would not be good for commerce or share prices. And each party seems to have a different approach to how to resolve the Brexit saga.
Other topics of debate include the NHS, economy, public services, crime, and last but not least, climate change.
Initial polls point to a hung parliament, but the final result may be a complete surprise. Current support in the polls doesn’t always translate into votes or seats in Parliament. As the candidate with the most votes in each constituency is elected to the House of Commons, there may be unexpected results in different parts of the country.
So what can the average investor do?
In this election, if the renationalisation discourse by Labour intensifies, then companies in several industries may eventually be affected. Investors are already beginning to wonder about the fate of utilities such as National Grid and SSE, or water companies United Utilities and Severn Trent, as well as the telco giant BT Group. In addition, shares of UK-focused banks, such as Lloyds Bank and Royal Bank of Scotland, may also come under pressure.
It is hard to know how such a gigantic task of renationalisation would work in practice. However, I do not foresee any Labour government being too unfair with potential purchase prices. Furthermore, stock prices of these companies may already be reflecting a possible change of ownership. So I’d not necessarily believe that getting out of these shares completely now would be the ideal case for long-term portfolios.
Not only before an election, but in general, I’d regularly review my portfolio with an eye to diversifying. Diversification, either by sector or geography, may provide a relatively defensive investment opportunity.
Our readers may also consider buying a FTSE 100 tracker fund or the FTSE All-World ETF that tracks the performance of a large number of stocks worldwide.
A share portfolio constructed of different kinds of companies, sectors, and regions, may enable most investors to ride out the volatility of the stock market better.
On a final note, I’d encourage all eligible voters to register and to vote. It is possibly one of the most important rights we have as citizens.