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The cost of pricing-in

The confirmation the general election will finally take place – shock, horror – on May 6 has seen the PR operations of assorted investment groups having some fun on the subject. It is nice that somebody is.

Thus, the good, good people of Fidelity were able to take a brief time-out from trumpeting the news the China special situations IPO raised the best part of half a billion – I guess somebody must have watched those CDs even if I never quite got around to my copies – and focus on which political party might do best by investors.

They weren’t claiming it was the most scientific piece of research the group has ever produced , focusing as it did on broad-brush historical returns, but then isn’t that in the best traditions of bouncy polls pundit Peter Snow on election night? After all, it’s just a bit of fun.

Apparently, Conservative administrations have historically proved marginally better for investors than Labour ones while Liberal Governments, which really did used to happen in the olden days, presided over positive territory just once out of three goes.

Equity investors enjoyed both their worst and best annual returns under Tory Prime Ministers with Neville Chamberlain’s time in office at the end of the 1930s – admittedly quite a tricky time – returning -11.5 per cent compared with the almost 20 per cent of Winston Churchill’s third term in the 1950s. This may be revealing a little too much of myself but that kind of feels like how it should be.

The effect of the imminent election on markets was firmly to the forefront of advisers’ minds to judge from the question-and-answer sessions at the various IFA roadshows run by fund groups over the first three months of the year I have no concrete proof but my instinct is that of the 412 or so different events that took place in that time, this was easily the most popular question.

It certainly cropped up in some shape or form at every event I chaired and/or attended, as did the answer from every single manager on every single Q&A panel that the imminence of the election was hardly news and, as such, the markets had probably priced everything in.

Clever markets to achieve that level of certainty when no two polls in a row can agree on whether we’ll have a Conservative Government or a hung Parliament or something even more depressing. At the time of writing, the former Labour councillor and architect of the “mansion tax”, the sainted Vince Cable, was 8/1 on Betfair to be the next Chancellor of the Exchequer. Price that one in, if you dare.

I prefer the stance of Richard Buxton, Schroder’s head of UK equities, who suggests: “Maybe the real surprise will be that the market blithely ignores the daily twists and turns of opinion polls, speeches and debates, and maintains its current buoyant trend.”

Buxton remains upbeat throughout his analysis, noting the next Government is likely to be very business-friendly and that “shrinking the size of government will mean additional opportunities for the private and voluntary sectors to fill the voids created through the retrenchment of the public sector”.

He continues: “Historically, periods in which the public sector has diminished as a percentage of GDP have witnessed increased productivity growth – an area where Britain has indeed lagged in recent years as the public sector has grown. None of this sounds particularly troubling for UK equity investors or, indeed, sterling.”

Ending on a patriotic note of which the most equity-friendly Prime Minister in British history would be proud, Buxton reminds us we are not so far away from 2012, a year that will not only bring the London Olympics but also the Queen’s Diamond Jubilee “These events are rarely economically depressing and more often the reverse,” he says. “If ever the coincidence of two events is likely to create a huge feelgood factor in the UK, 2012 is the year.”

And Buxton’s election forecast? “The Tories win a workable majority and all talk of a hung Parliament is forgotten,” he predicts. “Moreover, unlike the consensus view, they actually prove quite capable in Government – and the stockmarket quietly ignores the whole campaign.” I could live with that.

Julian Marr is editorial director of and www.


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