Conservative governments are better for the stock market – at least in the 12 months following a Tory win, according to historical data.
Including the 1945 vote, there have been 17 General Elections in post-war Britain. The Conservative Party has won a General Election nine times since 1945 – and eight instances the UK stock market rose in the following year, with an average annual return of 10.8%.
This favourably compares the eight years the Labour Party has won; as in only three cases has the stock market risen following their election to government. In 12 months following a Labour win the average stock market annual return is negative at -5.4%.
The averages are heavily skewed by individual instances of bull and bear rallies – in 1974 when Labour was elected to power the FTSE All Share fell 55%, and in 1955 when the Tories won the UK stock market rose an impressive 50%.
The figures, compiled by consultancy KL Communications, tracks the performance of the 2,000 companies listed on the FTSE All Share. The FTSE 100 blue chip index has a more global outlook, with 70% of its revenues being sourced outside of the UK. But the FTSE All Share includes small and medium sized businesses, whose revenues are usually more domestically sourced – which are the most sensitive to policy change.
Hugh Yarrow, manager of the five star rated Evenlode Income Fund, which invests predominantly in UK equities said that the election will have a limited impact on the long-term fundamentals of the companies he invested in, where the operations tend to be quite global in nature.
“Evenlode does not invest in banks or utility companies, which are probably the two most sensitive sectors to the election outcome,” he added.
But he did concede that any European Referendum would have currency implications.
Investors Should Not Worry About the Election
Stock market turbulence caused by the General Election will be short lived, said stockbrokers Hargreaves Lansdown – and investors shouldn’t let the election change their investment plans.
Laith Khalaf, Senior Analyst, Hargreaves Lansdown said: “The political machinations in Westminster have little bearing on the earnings potential of UK companies, which ultimately drives stock prices in the long term.
“So while sentiment may swing, investors should stick to their guns and not let the election clamour distort their savings plans. The only possible exception to this is for higher and additional rate taxpayers to consider bringing forward pension contributions, as the days of the current tax relief system look numbered, whoever gets into power.’
