(MENAFN- ProactiveInvestors) UK investors should expect a bumpy run-up to the General Election in May with the outcome so uncertain stockbroker predicted today.
“We can expect wobbles as the market broods over what the polls mean for UK membership of the EU public spending and the budget deficit” said Laith Khalaf senior analyst.
On Monday senior Tories Labour leader Ed Miliband and Lib Dem Nick Clegg all used public appearances to set out their stall to voters.
As the electioneering ramps up even more intensely investors will have plenty of time to wonder what it will mean for the UK stock market.
Khalaf however believes investors shouldn’t expend too much energy on second guessing which way the election is going to go and what effect this will have on stocks.
He says a quick look back through the history books suggests it is global events which tend to move the UK stock market more than elections.
This year monetary policies of the US Federal Reserve and the European Central Bank are likely to feature heavily along with the usual catalogue of unforeseen events.
“Chances are when we look back on market performance in 2015 it won’t be the election we are talking about” added Khalaf.
Another reason for inertia is that at the moment the outcome is more uncertain than any election for decades.
A quick look at the betting market reads more like the Grand National.
Bookie () for instance is quoting no less than a dozen potential outcomes.
They range from odds of 4/1 that the next government will be another Con-Lib Dem coalition a 7/1 coalition involving UKIP.
Labour is 9/2 to form a minority government and for those that like an outsider a Lib Dem majority is 500/1.
The odds reflect the fact that no-one knows how things will turn out in May.
It may be the case again that we won't get an outright winner and will be looking again at the formation of a coalition party or a minority government.
Still individual stocks will be affected by the election outcome.
“We think that most UK stocks which are sensitive to elections will be under pressure over the next few months” said JP Morgan Cazenove analysts in their recent Europe Year Ahead 2015 report.
The firm’s experts believe that the election result will be highly unpredictable right up until polling day and have put together a basket of stocks that could face strong headwinds given the uncertain political environment.
Four stocks in the services sector (Babcock () Capita () () and Serco () are on the list due to exposure to the UK public sector.
“The risk is that contract awards slow in an election year and we note that the sub-sector underperformed in the election years of 2005 and 2010” said the JPM analysts.
If Labour wins the broker expects bank stocks to struggle due to a potential drive for greater competition in the sector - () and Lloyds () appear in the broker’s list of stocks to short.
Meanwhile utilities would suffer from a possible 20-month energy price freeze affecting SSE () and ().
It’s not just brokers showing concern; the election was uppermost in the minds of more than 100 large business finance chiefs polled by in December.
With voters fragmenting towards UKIP the Scottish National Party (SNP) and the Green Party the risk of political instability and the possibility of more radical policy changes is greater than before.
"In the past CFOs had been more concerned with increased financial and economic uncertainty but they're now latching onto the more uncertain domestic political landscape” said Ian Steward ’s chief economist.
Michael Hewson analyst at spread betting firm CMC Markets added there was a "troubling" macro political investment environment to consider especially the future of the European Union.
"You've got elections in Portugal Spain and Greece next year and you've got a lot of anti-Euro parties currently in the lead in all three of those countries."
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