Stock markets have been strangely sanguine about the upcoming General Election, but they shouldn’t be.
This is starting to look more like absent-mindedness than grace under pressure, because the next few weeks could be turbulent.
Fund manager Fidelity has warned that the wrong result could knock up to 15% off the FTSE 100.
Blowing In The Wind
This is the election that is simply too close to call, despite the plethora of polls and spread betting data at our disposal.
The IG Index Election Barometer reveals that spread bettors see a 48% chance of David Cameron being the next prime minister, against 52% for Ed Miliband.
The problem is that the winner won’t be decided by who emerges with the most votes or seats. It will ultimately come down to unseemly political horse trading as today’s distinctly underwhelming politicians look to cobble together a workable minority government or coalition.
Coalition Chaos
Last time round it was sorted pretty quickly, as the Conservatives and Lib Dems could muster a decent majority between them.
Markets seem to think that can be done again, but it will almost certainly be a lot messier.
While there is a slim chance that the Tories and Lib Dems could pass muster again, we could see Labour, the Scottish Nationalist Party (SNP), Plaid Cymru shoehorning a left-wing coalition together.
I can’t imagine markets will react to happily to that.
Lost Like France
The left still see business and wealth creators as cash cows to be milked to fund social projects rather than fertile ground to be watered for economic growth.
British firms are likely to wither under a wave of new taxes and regulations, with the banking and energy sectors right in the firing line.
And the anti-business rhetoric could scare off fresh investment, both from the UK and overseas. Think France.
Unknown Unknowables
It won’t be all fun and games if the Tories win, either. Any market spurt could be short-lived as investors focus on the unnerving prospect of a 2017 referendum on EU membership, pledged by Cameron in a moment of weakness.
We could even see the EU referendum this year, if the Tories need the UK Independence Party to prop them up in office.
From Thursday, we enter unknown territory.
The uncertainty could even drag on for week, or months if we get a second election later this year.
What you shouldn’t do is dump your portfolio in panic. That way you only crystallise any losses, rack up trading charges and leave yourself a tricky decision over when to buy back into the market.
Instead, track your favourite stocks to see how they respond to political uncertainty, because the next few weeks could be a great time to buy them at a discount.
