The 2015 UK general election is fast approaching but many people still don’t have a clue on whom to vote for.And I don’t blame them. Politicians have always promised much in terms of various policies before an election but have always seemed to go back on these promises or mismanage policies once elected. As the old saying goes, talk is cheap. All these debates leaders have been having are futile. But history is a great thing. It can teach us many lessons that we can take forward. In this case, you as an investor will want to know what history will tell you about your future investment strategy depending on which party is elected.
According to a recent publication by Hargreaves Lansdown, the UK stock market has historically performed almost twice as well under the ‘pro-business’ Conservative rule than it has under Labour stewardship.
The analysis carried out in the publication brought to light other facts too. The last Labour minority government of 1974 (a year in which had two general elections) oversaw a 50% fall in the stock market, while the market increased an astounding 360% plus in the five following years. The Thatcher/Major years were fertile too: the market grew over 200 per cent during the period.
Using Bloomberg data on dividends reinvested, the report revealed that the annualised return since 1970 was:
- 16% during years the Tories were in sole command.
- 9% when Labour was at the helm.
- 9%during coalition governments.
The report doesn’t, however, point the finger at political leadership, instead blaming global economic conditions. It is imperative to know that the UK stock market is made up of companies with global earnings streams, and the fortunes of these companies are not dictated by any one political party
Having stated the above, I don’t think the elected party(s) will have too much of an influence on the UK stock market over the next 5 years. In particular, I think the election will have very little influence on the FTSE 100 in particular. This is because most companies on the FTSE100 are internationally focussed and they derive the majority of their income from overseas. Conditions more likely to affect the UK stock market over the coming year will be dictated by the global stage: geopolitical concerns, oil prices, the Eurozone and the performances of the US and China.