Talking with clients this year, the main topic of discussion has inevitably been the election and its impact on markets.
With campaigning in full flow and a plethora of promises from both sides of the house, why all the fuss? And what will this all mean for investors’ returns?
To put it simply, it’s all noise.
Earlier in the campaign, Labour leader Ed Miliband was a great friend of business, yet if we look back some months, he was threatening to freeze the prices utility companies can charge.
Great news for consumers, not so great for companies that spend billions investing in infrastructure on the premise they can charge a market rate for their services.
Neither is prime minister David Cameron’s government immune from impacting markets.
While cheered by many, the removal of the necessity to purchase an annuity in 2014 was disastrous for companies involved in the provision of these services.
Perhaps less headline-grabbing was the lowering to £1m of the total amount invested into a pension. This extends the stealth raiding of pensions that former prime minister Gordon Brown began, with the removal of dividend tax reclaims – something that will provide long-term issues for the investment industry and pension savers.
So, what is the market telling us?
Unfortunately it is not giving us any clear ‘inside information’. Previous elections that have been too close to call – 1970, 1974 and 1992 – saw falls in the market in the 12 months prior to the election.
At the time of writing, since May 7 2014, we have seen a very small positive return. With a few weeks to go to polling day, this could very well turn into a negative year-on-year number, especially as the sabre-rattling increases.
How about what the market will do if the Conservatives or Labour achieve an acceptable outright majority?
Once again, looking at elections from 1966 through to 2010, the evidence is not entirely clear.
If we strip out the too-close-to-call elections, then four of the years following an election (two were Labour governments, two were Conservative) saw a decline in markets. That leaves four up markets – once again, evenly split between Conservative and Labour governments.
It is interesting to note every prime minister from 1966 through to 2010 has seen both positive and negative returns in the year either preceding or post taking office, with one exception: David Cameron.
Thus, the only real information we can draw from the past is the election is likely to be a close-run affair.
Frustratingly, no new information there. But what is clear when looking at these isolated returns is that, rather than the leaning of the government – be it stable or in flux – it was external events that drove market returns. These range from the emergence of the internet as a real force to the price of oil.
So while history doesn’t repeat, it will rhyme, and whichever party or coalition of parties comes together to form the next government, the market will be looking in a different direction for the next story.
Paul Surguy is a discretionary fund manager at Kleinwort Benson
