How To Position For A UK Election With “Sizable” Scope For Surprises

How To Position For A UK Election With “Sizable” Scope For Surprises

about 4 years ago2 mins

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Brits elect a new government on Thursday just 2 1/2 years after they last traipsed to the polls. Here’s our roundup of the vote’s potential market impact, and the key events to watch for on election night.

What does this mean?

With just a couple of days left, almost all opinion polls predict a win for the Conservative Party 🔵

Source: TD Securities
Source: TD Securities

That said, the polls failed to anticipate the Leave victory in the 2016 referendum on European Union membership or 2017’s hung parliament – when no party could command a majority.

“The scope for surprise at this week’s general election is sizable,” according to a report from Goldman Sachs. “The share of voters that are still undecided — so late in the campaign — means that even a small swing in that slice of the electorate would lead to a hung parliament.”

Why should I care?

The main market reaction will be seen in the pound, not stocks 💷 That’s because companies in the benchmark FTSE 100 get about 75% of their revenue from outside the country – and even the more domestically-focused FTSE 250 gets half.

“Markets will generally cheer on a positive result for the Conservatives,” according to Nordea. “Clarity is all that matters on the Brexit narrative.”

As always, however, investors have begun placing their bets before the event – and the options market shows more chance of the pound dropping than rising after the election.

UK-focused stocks and the pound have climbed since the summer
UK-focused stocks and the pound have climbed since the summer
Options traders see greater chance of pound declines
Options traders see greater chance of pound declines

What should I watch for on election night?

An exit poll will be published at 10pm London time – as soon as voting ends. Watch it closely: it’s correctly predicted the headline result in four of the past five elections. The seat-by-seat results will be announced over the following hours, with about half declared by 3.15am 😴

Source: Goldman Sachs
Source: Goldman Sachs

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