The possible consequences of the UK election on markets: perspectives from the past

Financial markets/economy

Posted by MoneyController on 27.05.2024

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In a surprise move, the British Prime Minister and leader of the Conservative Party, Rishi Sunak, has brought forward the UK elections by about three to four months: they will therefore be held on 4 July. But what could be the consequences for the financial markets?

Market developments in the UK after the elections

In this regard, Jenni Reid (CNBC) reported some perspectives on the basis of a historical data set. The investment bank Citi wrote that - excluding the occurrence of destabilising events such as the Great Financial Crisis or the bursting of the Dotcom Bubble - UK stock markets have been ‘relatively flat to down’. Citi, however, also analysed the performance of the MSCI UK index comprising large and mid caps: the result is an average rise of 6% in case of a Labour Party victory and an average fall of 5% in case of a Conservative victory.

Other results from the historical analysis

Other considerations made on the basis of the analysis of the historical performance of the financial markets in the UK are as follows: the FTSE 250 has usually outperformed the FTSE 100 and has done so even more strongly after Labour won; from a thematic investment perspective, the stocks that have historically performed best in the post-election period have been defensive and financial stocks, particularly energy and banking stocks.

Does the election variable really matter for the markets?

Reid also reports some remarks by Capital Economics' Chief Markets Economist, John Higgins: the expert notes that financial markets have been “generally disappointing since 2010”. This time frame corresponds to the period of government by the British Conservative Party. Nevertheless, Higgins doubts that a Labour Party victory would particularly benefit investors. This would be confirmed by some remarks reported by Barclays CEO C.S. Venkatakrishnan to ‘CNBC’, who reportedly spoke of little difference between the economic programmes of the Conservative and Labour Parties.

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