The general election could trigger chaos for the stock market as investors pile in or offload shares – but this is likely to happen in the months after the vote rather than in the build-up as many people believe, according to research from Axa Wealth.
Despite talk of political uncertainty shaking the FTSE All-Share Index in the build-up to the vote, new research has revealed that the three months before the last five general elections have been relatively calm. However, the market could swing dramatically following the result, according to analysis of historic data by Axa Wealth.
In four of the last five elections (1992, 1997, 2001, 2005 and 2010) the index – which includes the FTSE 100, the FTSE 250 and the FTSE Small Cap Index – swung sharply in the three months following the vote compared to the three months before. The most marked shift came in 2001 when Labour won a second term in power in what was dubbed a “quiet landslide”. The index moved just 0.61pc in the three months leading up to the result but then dropped by13.36pc in the three months afterwards – pulled down by tumbling financial services stocks.
Mining shares tend to perform strongly in the build-up to a general election, whereas banking stocks typically rise amid post-election turmoil, the study found.
“Certain sectors seem to thrive on the political uncertainty that an imminent election engenders,” said Mike Kellard, chief executive of Axa Wealth. “Mining stocks strongly outperformed the market before three of the last five elections. On the other hand, financials perform strongly in a more settled political environment [when there is a clear leader in the polls].”
However, uncertainty ahead of this election – one of the most open in modern times – has deterred small companies from listing on the AIM market.
Only 10 companies floted on the index in the first three months of this year – a 63pc drop on the previous quarter according to research from UHY Hacker Young.
“The upcoming election has generated increased caution among companies and their investors, perhaps more than usual because of the possibility of a hung parliament,” said Laurence Sacker, corporate finance partner at the accountancy group.
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