Morning Brief – What If: UK Equities Market post General Election

What If: UK Equities Market post General Election

 

The main theme of your questions in the past two weeks has been what might happen in the Equity market after the election. So with four days until we get the result, we are going to have a go which is based on what the markets are telling us rather than any kind of political affiliation or antipathy(!).
First off in Currency land, GBP has enjoyed a really positive run and having reached new highs on Thursday last week, levelled off and is on hold as we write. The conclusion from that is that the market expects a clear cut Conservative majority. With the FTSE at 7240 on the close on Friday night, it is within 500 points of its high in July this year and 600 points below the highs seen in 2017.
So what if there is indeed a clear Conservative majority-ie enough to achieve a working majority over all the other parties? The market is looking for an excuse to rally, and it will do so sharply with banks, real estate and utilities being the main beneficiaries.

 

At the other extreme, which the market is not expecting and which is the least likely outcome, would be a clear Labour majority. That means that such an outcome would see equities selling off very abruptly.
It is in the middle that is more difficult: if the result is that the Conservatives are the largest party but the Labour, SNP and LibDem votes in aggregate are larger, then there are two outcomes that are most likely: the first is that a hung parliament will be so disfunctional that nothing much is achieved and after a further period, there would need to be another General Election. The market would not like that and both GBP and Equities would sell off. This however is the second most likely outcome and the market is not discounting it, so watch out for fireworks next Friday if this proves to be the case. Less likely and in the third most probable outcome is that Labour, SNP and LibDem find themselves aligned sufficiently to operate as an effective coalition.
While difficult to see, there would be some natural and in some respects unforeseen consequences of such a coalition: Brexit would not get done and in likelihood Article 50, after a people’s vote, might well get withdrawn. The market would like that and both GBP and Equities would as a result rally although over a longer timeframe. The price of that rainbow coalition would be allowing the SNP a further vote on Devolution. If that were passed, the market would not like that initially at least-cost, uncertainty and perceived damage-although over time the UK ex Scotland would be better off and consequently GBP and Equities would rise.
So there you have it. 4 scenarios with markedly different outcomes and timeframes.

 

 

Seasonal cheer: the robots are coming: machine learning and the great AI adventure.

 

Expect more reports of how the great AI or robot service has not worked and left users distinctly underwhelmed by the service that they have received. Despite that, this weekend has seen the AI devotees fighting back and coming up with distinctly iffy statistics as to how jobs are disappearing at the top end of stockbroking and banking. Our view is not based on a resistance to technology nor the many advantages that it brings-our own business is based on that-but rather the fact that we all want to use technology to make our lives run more smoothly and faster. Our experience is that recorded preselection options with managing Equities, Insurance, Banking and even appointments with Doctors, are not at all smooth and nor are they quicker!

 

 

 

Discussion and Analysis by Humphrey Percy, Chairman and Founder

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