Frankly, I am bored! Referendums and elections, but nothing seems to have changed for the last three years.

One certainty about this election is that that the outcome is uncertain; opinion polls will tell you one thing but as we have seen over the last couple of years, they have not been a good weather gauge for the eventual outcome.

In this blog we just want to share some thoughts with you.

How do British shares do before and after an election?

Let’s start with this table courtesy of the Telegraph:

Year Prime Minister Party One Year Before One Year After
1970 Edward Heath Conservative -11% +37%
1974 Harold Wilson Labour -21% -15%
1979 Margaret Thatcher Conservative +33% -7%
1983 +31% +13%
1987 +44% -15%
1992 John Major Conservative -5% +19%
1997 Tony Blair Labour +12% +32%
2001 -7% -17%
2005 Tony Blair / Gordon Brown +8% +28%
2010 David Cameron / Nick Clegg Conservative / Lib Dem +17% +18%

What this shows is how the FTSE All Share Index did in the year before and after an election.

We can see that shares tend to perform best when an election is easy to call; as shown in the run up to the elections of Margaret Thatcher and Tony Blair. When there is uncertainty the returns are likely to be negative as displayed in 1970 and again in 1992.

In 1970, 1997 and 2010 markets rose in the year following the change in government but when the result was less certain, markets dropped (1974 and 1979 are good examples of this).

Interestingly, since 1970 all Prime Ministers have seen British shares deliver positively under their tenure (except for Gordon Brown). The highest returns were 503% under Margaret Thatcher, then John Major at 173%, Tony Blair at 99% and James Callaghan at 93%. Even Theresa May saw a small increase whilst she was in No. 10.

What we can understand from this, is that if markets are more certain of an outcome, they can prepare and often respond accordingly. In 1997 economic growth in the UK was accelerating, but it was obvious that change was afoot. The market responded well to the new government and one of its first decisions was to give the Bank of England independence. 2005 again saw the markets respond well, once it knew it would be dealing with another Labour Government. Since then it has been less easy to call and that brings us to today.

What should worry us

We know that UK stocks are unloved, and undervalued; for this to change the UK needs certainty, a hung parliament will not deliver that so UK shares will likely drift.

It does seem implausible (but not impossible) that Labour would secure a majority, and therefore the leaning seems to be towards a coalition with the SNP. This will continue to bring uncertainty for the UK market in the short-term. Labour will seek a new Brexit deal, call a referendum and then once that is decided we can move forward. If they do a deal with the SNP, then they will likely have to call a Scottish Referendum.

If the Conservatives achieve a majority then we assume Brexit will happen by the 31st January, if not earlier. This will see a recovery in Sterling but to what level we don’t know; the estimates vary but it may not rise to the same heights it was at before the 2016 referendum.

One other option is that the Conservatives are the largest party but with no majority, and we can’t see who they would team up with. We could end up with a government of national unity but how long that lasts will be interesting!


In terms of investing, our portfolios are globally focused with some UK exposure. Therefore, whatever happens in the UK shouldn’t massively impact them. A global recession, a spike in trade wars, increased tensions in the Middle East, Trump not being re-elected are all things to have more of an impact.

If the Conservatives secure a majority then it is likely the markets will react positively and our exposure to the UK albeit small, would benefit from this. If Labour come into power, we suspect the UK markets certainly in the short-term will react negatively, and our under exposure to the UK would cushion any potential downside to the portfolios.

As we can see from history in most cases when the markets settle over the long term they return positively.

Should a Labour Government worry us?

This is a million-pound question!

In the short-term unless Labour secures a majority, they will be wrapped up with Brexit, a second referendum, and if they strike a deal with the SNP; an independence referendum. It will mean that much of what they have promised can’t happen in the short-term. As a coalition, can they survive five years?

They would want to make some immediate changes, so we can expect a statement from the new Chancellor of the Exchequer and from that, there will likely be taxes levied at the rich (whoever they class this to be).

In terms of investments, if these are globally diversified and not in politically sensitive UK stocks over the long-term, a Labour government shouldn’t be an issue for the portfolios (there are other issues to consider which we have mentioned).

Where next

To conclude, if we look back over history, markets do what they do. We can analyse them to death, but different factors play a part in returns. Our portfolios have exposure to the UK, but they are globally diversified so the election in the UK and any new government does not impact our holdings in emerging markets, the US etc.

Both parties will spend if they come into power and this will benefit some stocks. Under a Labour government some stocks will not perform well, but the complexity of nationalisation must be a factor to consider. The one concern will be where Labour levies taxes and that will only become clear if they come into power.

As investors, we believe that remaining focused on the long-term picture rather than short-term noise will help guide people through the changes ahead.

Note: This is written in a personal capacity and reflects the view of the author. It does not necessarily reflect the view of LWM Consultants. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.