8 May 2015

‘UK Conservatives win overall majority’. Well, nobody saw that coming did they? The pollsters shouted about the closest UK election since WW2, while early exit polls suggested only a slim win for the Tories. For weeks and months we were being geared up for a knife-edge contest, with uncertainty from a possible shift in power to Labour and messy coalition negotiations. And we’ve ended up with pretty much no change. UK equities have understandably reacted favourably to the news, with the UK flagship index regaining all of the early week’s lost ground to revisit and get back above the key 7000 level. A new government is good, but no change is better.

Financials (LLOY, RBS, BARC) are some of the biggest beneficiaries with fears of bank break-ups and tax hikes removed and the planned LLOY stake sale likely proceeding. Property-related names are breathing a sigh of relief that the mansion tax threat has been removed while Utilities are thankful the prospect of tougher price regulation has been put to bed. Outsourcers and Transport also like maintenance of the status quo in terms of government contracts. Given that only weeks ago the index finally managed to hit all-time highs with a Conservative/Lib-Dem leadership, can we assume now that a pure Tory pro-business government could see the same delivered again soon?

Longer term, don’t forget though that Cameron is still looking for a referendum on EU membership by 2017 while the SNP’s landslide success north of the border (at Labour’s expense) means the Scots could again vote on independence, unless Holyrood and Westminster can work together on more devolutionary measures. For the moment though, it all look rosy for UK PLCs and the UK Index indices.

For more on the subject of 2015 election fallout, make sure you get a copy of our upcoming report early next week.

Enjoy your (less politically uncertain) weekend.

Mike van Dulken, Head of Research