Which sectors benefit from Conservative government?
Conservative governments are typically private sector-friendly and supportive of tax cuts, both for individuals and corporations. However, crucially for this election, a Tory victory would likely mean a ‘Hard’ Brexit, although a landslide may provide some leeway for a transitional deal between the UK and EU as parliamentary votes become subject to less opposition. A harder Brexit would see the free movement of people between the UK and Europe limited, potentially affecting industries such as Housebuilding, Hospitality and Travel. Away from Brexit, several Tory MPs revealed that the party would propose a cap on energy bills should they win the election, resulting in UK 100 companies Centrica and SSE suffering subsequent share price declines.
What about under a Labour government?
Labour traditionally model themselves as a party for the regular worker rather than the corporation and, for this general election, the party is pursuing a more left-leaning agenda than ever before. The party will likely look at clamping down on tax avoidance, while potentially increasing corporation tax; this is a move that would initially negatively impact the UK 100 . Perhaps the most divisive issue that a Corbyn-led government would face is the renewal of the Trident missile system. Should the Labour leader get his wish and scrap Trident, defence contractor BAE Systems could suffer. On the plus side, a Labour government would look at investing heavily in the Steel industry, which would likely be beneficial for the Raw Materials sector.
How has the UK Index reacted?
The surprise announcement of the election on 18 April inspired Pound Sterling to 2017 highs against the Euro and the US Dollar. The UK Index subsequently sold off -2.5%, the second largest drop since the UK’s EU referendum. Historical analysis shows that the UK’s blue-chip index was rallied 2.2% on the Friday after the 2015 general election vote as a Conservative party victory was viewed as the market-friendly outcome.
However, with upcoming Brexit negotiations being the over-riding issue of importance for markets, even a Conservative victory in the election could see a multitude of reactions. A landslide Tory win could see Sterling strengthen to the detriment of the UK Index , while a Tory win with a reduced parliamentary majority could see the pound sell-off. Alternatively, a surprise win for Labour could prompt a similar market reaction to that of the EU referendum as the UK adapts to a new government facing off against the EU.
How to protect your portfolio
In the absence of a crystal ball, no-one can predict the future and, while you may have a dependable, tried and tested portfolio, you can never be too careful when trading political events. Alternatively, you may see the election as a time to enter into some trades that you would not normally pursue, in order to enhance your current holdings.
In either situation, you may want to look at hedging your portfolio through a short position. By opening a short, while exposed to the same risks as a long position, you can profit from falling prices. For further details on how you can use shorts to hedge against falling prices, watch our educational video on the subject here.
Over the page, we list our top four general election stock picks, providing you with charts, technical indicators and price targets. With something for both the expected and unexpected, which of these stocks will you vote for?
