Interactive Investor

Here's how you are investing ahead of election day

7th June 2017 12:50

Lee Wild from interactive investor

Britons go to the polls tomorrow in what was meant to be a cakewalk for Theresa May's Conservative Party. Unfortunately for her it could be far closer than anybody thought possible, and there is still the outside chance that Labour leader Jeremy Corbyn could snatch the keys to Number 10.

With Labour appearing more vulnerable than at any time since Michael Foot, a landslide victory had looked inevitable. Mrs May certainly thought so, calculating that a massive majority would hand an unelected prime minister a clear mandate for Brexit negotiations, and leave her with a full term to conclude talks with Brussels.

A YouGov poll last week gave the first hint that all was not well. Subsequent polls have shown a far smaller margin between the two main parties, and it's injected some energy into Labour's campaigning.

Latest from YouGov has the Tories ahead by only four points, and a Survation poll for the Good Morning Britain TV show had the Blues on 41.5% and the Reds on 40.4%.

An Interactive Investor poll of over 7,100 investors, run as the Conservative's lead narrowed, showed 10% selling shares as they feared an 'anti-City' Labour could topple May's Tories. A further 11% were taking profits on valuation concerns.

That perhaps reflected worries market-wide, given the FTSE 250 mid-cap index lost over 2% of its value from a record high early Friday.

However, an unwavering 22% are so sure of a Conservative win that they're still buying equities, while a resilient 17% say the election has absolutely no effect on their investment decisions. This sub-total is similar to the poll we ran ahead of the EU referendum showing 41% investing as normal.

By far the greatest response this time was from the 39% who said they were sitting on their hands, waiting until after the result is known before trading again. That is not untypical of investor behaviour ahead of scheduled but unpredictable events such as this election.

"It is an extremely risky strategy to try and position a portfolio in anticipation of any single scenario," argues Asbjørn Trolle Hansen, manager of the Nordea 1 - GBP Diversified Return Fund.

"Making major asset allocation decisions based on macro calls of well analysed events has repeatedly proven to be a difficult investment strategy. While Prime Minister Theresa May's Conservative Party is still narrowly ahead in most recent polls, a lot can change. Therefore, in our opinion, investors simply do not need to take this risk."

But, in the past day, the political landscape has shifted again, with ICM putting May 11 points ahead of Corbyn, and the high street bookies quoting the Conservatives at around 1-10 odds-on versus Labour at around 6-1 against.

 

Latest survey by pollsters Opinium has the incumbent Tories at 43%, the same as a previous poll on Saturday, and Labour down one point at 36%. "Labour's campaign surge appears to have crested," says Opinium's Adam Drummond.

Simon French, chief economist at Panmure Gordon, sums it up nicely, likening Labour to a "tail-end batsman swinging for fun". For him, "the game appears to be up for Labour".

"We anticipate a 60-seat Conservative majority - leading to a slight weakness in sterling over the near-term and a small relief bounce in domestic equities, led by financials."

But financials aren't hanging around for the result. A £1 billion out-of-court settlement for the 2008 rights issue litigation put Royal Bank of Scotland top of the blue-chip risers Wednesday, but rival banks, insurers and wealth managers are close behind.

Lloyds Banking Group is in favour again after a pull-back from last week's one-year high, closely followed by Barclays and Standard Chartered. Investors like Legal & General, Standard Life and RSA Insurance, too.

If the Tories win, especially with a large majority, domestic firms should do well as sterling rallies. It's why housebuilders Persimmon and Taylor Wimpey are bid higher Wednesday, despite concerns that years of house price increases might be nearing an end.

Meanwhile, satellite TV colossus Sky continues to claw back recent losses suffered amid fears a Labour government would block the £11.7 billion takeover by Rupert Murdoch's 21st Century Fox.

There's also some relief among utilities, including Severn Trent and Pennon, although the threat of nationalisation still looms if there's a late surge in support for Labour.

It's likely why the traditional safe haven of gold and stocks exposed to the yellow metal are thriving. Randgold Resources is currently at an eight-month high and Fresnillo is worth more than at any time since November.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.