05.05.2015

How the UK Stock Market Performs After Elections

05.05.2015
Terry Flanagan

The UK stock market has returned more in the 12 months after a win by the Conservative party, rather than the Labour party, in the UK election.

A post on the Morningstar blog said that there have been 17 general elections in post-war Britain since 1945.

The Conservative Party has won an election nine times since 1945 and the UK’s FTSE All Share Index has risen following eight of their wins. The average return following a Conservative government being formed was 10.8% in the following year.

The Labour Party has also won eight times since 1945 but the FTSE All Share Index has only risen three times following their election. In the year following a Labour win the the average stock market performance was a loss of -5.4% in the following 12 months.

Morningstar said: “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%.”

Last month Mike Amey, managing director and portfolio manager at Pimco responsible for sterling portfolios, said the UK economic recovery is expected to stay on course despite the political uncertainty of the election on May 7.

The latest polls predict that no single party will win an overall majority, which could result in another coalition government.

Amey said in a video on Pimco’s website that the UK is performing well – with above trend growth of 2.5%, rising employment and wages, and a falling deficit.

“Political uncertainty is not a shock and is a lot less than at the last election,” added Amey. “Even a minority government should not stop the underlying momentum so we expect the UK economy to continue to perform well.”

Goldman Sachs said in a report that political uncertainty, of itself, has not been decisive for sterling but the macroeconomic backdrop is key.

“We ultimately think that the GBP will be driven by the solid fundamentals of the UK economy,” added Goldman. “Together with the implementation of the ECB’s QE programme, UK outperformance should see Sterling strengthen versus the Euro over the next 12 months – we forecast EUR/GBP at 0.65, from 0.71 currently.”

Featured image via Dollar Photo Club

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