A Boris Boom Or Corbyn Crash? How Will The Election Result Move The Stock Market?

4th Dec '19 by Ben Hobson

36 comments 5769 reads

With just days to go before the UK general election, all eyes are on the stock market for clues to which way prices might move once the result is known.

After three and a half years of uncertainty since the EU referendum, the biggest questions surround Brexit, and whether the result will make things clearer. There’s a view that Brexit turmoil has put the brakes on big decisions by corporates and consumers alike. So, will the Conservatives win a majority and “get Brexit done”? Will Labour defy the polls and introduce a new agenda for Brexit and business? Or will a coalition government emerge and bring with it all manner of uncertainty?

There are also wider questions about how the market will react to some of the policies on offer. In many ways, the Tory manifesto promises more of the same, together with pledges on infrastructure spending, house building and progress on a new free trade agreement with the EU. That’s likely to soothe investors, but the outcome of Brexit looks likely to remain a big uncertainty.

Labour’s manifesto offers some rather more dramatic changes - some of which contain at least a kernel of common sense. But it’s likely that pledges on nationalisation, higher corporation tax and windfall taxes on oil and gas companies won’t go down well with investors. Labour’s pledge to renegotiate the Brexit withdrawal bill and hold a new referendum on it, might increase the chances of no-Brexit, but it would also prolong the uncertainty.

Right now, there’s evidence that the outcome of the election itself is the most pressing issue in the minds of investors. A survey by Interactive Investor found that its customers were more concerned about who will win the election rather than what will happen with Brexit (44% versus 32%). A third of their customers said they were not investing in anything until the outcome of the vote is known.

Meanwhile, 43% of respondents said they were increasing their cash holdings but an equally large proportion (45%) said they were sticking with their investment strategy whatever the political weather.

Are indices sensing a Tory win?

In terms of trends in the main share indices, there are signs that the market is sensing a result. Interpreting short-term gyrations is tricky, but the FTSE 250 index has clearly broken free from the large-cap FTSE…

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dmjram

5th Dec '19

Not so. The land tax is an excellent idea and is in fact a major source of revenue in that oft mentioned exemplar Singapore.
Have a read of the Adam Smith institute on the subject.

Gromley

I cannot work out whether that is the voice of the Daily Telegraph or the Daily Express or perhaps something a little more 'alt-right'.

Whichever - this is clearly not the right forum for idealogical claptrap of whatever persuasion.

Frap

A Brexit will, according to every think tank, result in diminished economic growth.

A solid Conservative majority will make Brexit happen and if the stated deadline is immovable this will be a disastrous no-deal.

With a Labour win, Britain will be a Marxist country with dissent stamped upon (as has been happening under Corbyn), economic disaster, and rising social unrest (a la 1970's) .

For the referendum, the voters were fed many lies and deserve another referendum as there is much more clarity over what leaving the EU means. It will not be democratic to deny voters the right to vote again now that they have more information.

For the sake of our economy and good long term investment returns we need to stay in the EU.

krashlord

Jonah

aflash

6th Dec '19

At 2 448 reads this post is not going to change enough votes to merit a lot of time. However two anecdotes may help your reflections.

First look at the Quebec referendums to leave the Canadian Confederation of Provinces. Both failed. Yet only now is the province attracting investment. That is 25 years after the last one and approx 35 after the first one. Society has been divided all that time. Capital has kept away all that time.

There is no quick fix for Brexit. Whatever the election outcome or the subsequent Brexit outcome there will be more elections and more negotiations.

I have moved as much capital as possible out of the U.K. despite the lousy exchange rate.

Anecdote two. The grand-daughter of an acquaintance works in the Cabinet office. She went to a poor comprehensive school, won Ox-bridge scholarships, then was fast-tracked within the civil service. Plus point, says something for a system that recognizes talent not privilege. However take note of what comes next. Her duties are to brief politicians on the facts of whatever issue they are dealing with. None take any notice in their public pronouncements, preferring headline catching banalities.

William K

7th Dec '19

Frap. May I respectfully dispute a couple of your points:

1. A Brexit will, according to every think tank, result in diminished economic growth.

I don't think we know what 'every' think tank believes. The respected economist Roger Bootle (2017) argues convincingly the outcome of Brexit is undecided and not necessarily bad for the EU or for the UK.

2. For the referendum, the voters were fed many lies and deserve another referendum as there is much more clarity over what leaving the EU means.

Is there really more clarity over what leaving the EU means? For the referendum of 2016, voters were certainly told many lies for and against Brexit. Most arguments concerning Brexit have been based on emotions, ignorance, prejudice, suppositions and irrational assumptions. Facts are conspicuous by their absence. We don't have crystal balls. We cannot predict the future with certainty. It would be naive to think that politicians say anything other than what helps them to get elected at the next election.

If we do have another referendum and the vote is to remain, the logical thing would be to hold a third referendum and settle for a best of three.

Reference:

Roger Bootle (2017) Making a Success of Brexit and Reforming the EU, Nicholas Brealey Publishing (London)

timarr

I think it might be worth pointing out that Bootle is an ardent eurosceptic and his views on Brexit are ideologically tinged, to put it mildly. You'd be hard pressed to find an economist with any aspirations to neutrality who thinks that leaving the EU is likely to boost the UK's economy.

But frankly who knows? We can't even predict the result of the election next week and even if we call that correctly we don't really know what the new PM will actually do when they assume the levers of power. Trying to trade this is like throwing darts blindfold at a board on a conveyor belt in the middle of a rugby match while wearing boxing gloves.

MacBoyUK

It'll be a Boris short honeymoon; then he'll be expected to perform. Corbyn won't happen.

Bonitabeach

Her duties are to brief politicians on the facts of whatever issue they are dealing with. None take any notice in their public pronouncements, preferring headline catching banalities.

It was ever thus, aflash.

There is an opportunity for the UK to benefit from Brexit but I doubt if any of our politicians have the ability to grasp it. I am old enough to remember the 1975 referndum on the Common Market when it was touted as an organisation that while not currently beneficial to the UK could be "reformed" once the UK was on the inside as a member. The exact opposite has happned, even during Thatcher's reign. I conducted business in the European Union between 1996 and 2012. The only way to succeed was to use indigenous nationals and to hide as much as possible the British antecedents. Everybody seemed prepared to accept German hegemony in Europe as a natural and unavoidable state of affairs.

The UK will only be missed in the EU because of its excessive net contribution to the EU budget. The EU has looked on the British as "chumps" we have regarded them as "chums".

Mrs Merkel has already offered to build Airbus, at the expense of the German state, a factory to replace Broughton. When the gloves come off (and they will) the EU will be tossing hand grenades with the pin out towards our economy at every opportunity. Our political elite will be responding with cricket balls and a "Britian Can Take It" fortitude.

Have a good weekend everybody.

Timarr.

Bootle may well be a eurosceptic and ideologically driven, but his arguments are based on facts and history. Admittedly he may be a little selective in his data, but I very much doubt if anyone is truly neutral on Brexit, and that includes economists.

Bonitabeach. Yes, I think the UK will be missed mainly for her financial contributions and the fact she's a net importer from the EU. Sad but true.

There are plenty of non-European economists out there who haven't got a direct interest. It's hard to find any that believe Brexit will benefit the UK in economic terms - and they all base their arguments on facts and history (and economic theory): it's largely about the process that determines which ones they choose - and it's easier to believe someone who hasn't nailed their colours to the mast before the event.

But, frankly, I think you'd have to be quite ideologically purist to think that Brexit can be justified on economic grounds - the economic arguments are covering fire, the real battlegrounds are immigration, sovereignty and an instinctive English dislike of not being in control of their future. All of which I sympathise with, but there'll need to be a remarkable series of events for the UK to end up better off as a result.

Timarr,

there is of course some sense it what you say. However I would (gently) challenge the statement :

There are plenty of non-European economists out there who haven't got a direct interest.

I actually think that most 'economists' actually do have an interest in the status quo : partly because they are heavily (intellectually) invested in the idea that "globalisation" (whatever that means) is the best thing sliced bread ; but also because to be honest that is the only environment they can really "model".

I cannot claim to know the best outcome, but having worked with economists for many years, I do think they are very biased to stay within an economic model where they think/claim they have some expertise.

Hi Gromley

I would (gently) agree with you.

Economists, as a group, have a specific world viewpoint. For instance, there is research that shows that the only people that act in the their own self-interest in the way that neoclassical economics would suggest are economists. This doesn't explain Roger Bootle unless, of course, he somehow personally benefits from Brexit.

As you might find from my blog, I am extremely dubious about a world driven by economists. Nor do I believe that a world driven by economic growth as measured by economics is the kind of world we should necessarily aspire to.

So, yes, I completely agree with you, but I still stand by my previous statements :-)

nemo

8th Dec '19

Isn't it lovely that people are so uncertain about the future? Usually when they are certain about it they are disabused of their conceit within the next year.

It was ever thus...

9th Dec '19

Actually Bootle fundamentally changed his arguments re the desirability of exports/a lower pound AFTER the brexit vote had reduced the value of sterling, to enable him to claim a positive brexit effect. Previously he had been very dismissive of export sourced growth and had championed consumption as the key variable to consider.

He is not only selective in his data sets, he changes his economic views to fit his ideological predisposition.

mojomogoz

Perhaps to add a little controversy...

The most positive outcome for Thursday is Boris winning and then implementing Corbyn's agenda. He doesn't need to do it exactly as Corbyn would in all regards and obviously he shouldn't go for the Corbyn blinkered ideological madness of believing he can immediately instigate such a huge economic and social change just as he is on the side of morality (in his opinion obvs). I mean Thatcher lead a revolution....but it actually unpacked quite slowly. A few key initial initiatives and then unfolding the plan over a decade plus.

If Corbyn had been more modest at the outset and just focused on a few things (and to be honest done by someone else than his flimflam self) rather than got out his socialist bazooka then he'd have given a weak Tory party a real run for their money and would at least achieve coalition of some sort and maybe majority.

We need social and infrastructure investment. For sure we have too much debt generally in the world but there is no way we are going to manage that down with hair short of austerity or depression....inflation and financial repression the only route that is happening in our modern proletarian polities. That's the Corbyn plan!...and BoJo seems to recognise that its a better one really so hopefully after slagging him off for the sake of the election result he can then get round to pinching his clothes..

What does it mean for the market? A lot of volatility and rotation. With inflation real assets are desired but high multiples and may be tricky to sustain....but the US is probably going to beat us to it as their economy and market creaks look out for the radicalism of modern monetary theory in full swing from either Rep or Dem. The US tax base cannot afford the US equity market to decline meaningfully without triggering a balance of payments crisis (US financial hegemon style...I know its got the $ and it aint Argentina) and dual action of seeking to keep market up and plugging the fiscal hole through monetisation likely to occur (the latter already has in response to recent repo stress which originates from dealers having to swallow too much treasury issuance).

So, vote Boris, get Corbyn if we're lucky.

Tony Drew

10th Dec '19

How disappointing to read these money grubbing diatribes. The people voted to leave the EU by the democratic process, they don’t want to be ruled by Brussels and be part of the 4th Reich. Westminster, with all its faults is our elected body and what we prefer not a bunch of unelected bureaucrats . A great country like ours can stand on its own two feet, be brave there is more to life than a few more quid in the bank.8

The people voted to leave the EU by the democratic process, they don’t want to be ruled by Brussels and be part of the 4th Reich.

Being charitable I assume you're not suggesting that the EU is directed by a bunch of genocidal psychopaths hell bent on using military power to establish male Aryan supremacy and ensuring the extermination of all those peoples deemed inferior?

But if you're not, it would be nice to know what you do mean.

11th Dec '19

A great country like ours can stand on its own two feet...

Why would you want to?

In Adam Smith’s imagery, “By directing industry in such a manner as its produce may be of greatest value, a worker intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end (the Wealth of Nations) which was no part of his intention .”

Smith saw the main cause of prosperity as increasing division of labor. Using the famous example of pins, he asserted that ten workers could produce 48,000 pins per day if each of eighteen specialized tasks was assigned to particular workers. Average productivity: 4,800 pins per worker per day. Absent the division of labor, a worker would be lucky to produce even one pin per day.

Westminster, with all its faults........

The country has the advantage of being close to European culture with a channel tunnel, built at great expense, and a border less society that prevents delays in crossing between countries. Free movement of people allows domestic agriculture to function and the NHS to flourish with workers from poorer countries doing what nobody born in the U.K. will touch. Everybody has realized this so arrangements are being made for nothing to change except an increase in bureaucracy and the loss of manufacturing capacity.

...democratic process...

Meanwhile China without existential dilemmas about democracy is the country of tomorrow.

In the U.K. 17 million out of a population of 66 million does not make a majority and with those results there will be paralysis for years to come.

...there is more to life than a few more quid in the bank....

One has to be healthy. However

having experienced enough structural unemployment in my life where one was qualified for work that did not exist

lived or had investments in countries where there were/are no services and no prospect of re-sale
experienced the inward looking snobbery of cliques aiming at self preservation in an evolving world

I find it sad that cosmopolitan U.K. has painted itself into a corner.

A Boris boom or Corbyn crash? How will the election result move the stock market?

Are indices sensing a Tory win?

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Ben Hobson

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