Election 2010: Managers say markets will remain resilient through campaign

High-profile fund managers have labelled the upcoming General Election as “irrelevant”, believing any result will do little to derail the UK stock market’s strong recovery.

With Gordon Brown announcing a 6 May Election date this week, many investors remain concerned about the impact scenarios such as a hung parliament would have on equities and the broader markets.

However, Schroders’ head of UK equities Richard Buxton says, despite a consensus view suggesting rising gilt yields and falling equities in the lead-up to the polls, he expects the surprise scenario of a market “quietly ignoring” the campaign.

“As markets traditionally hate uncertainty, it would be no surprise if equities were indeed nervous and weak ahead of the Election. But the Election is hardly going to come as a shock item of new news,” Buxton says.

“Is it likely that the arrival of the formal campaign triggers massive investment flows or haven’t all the possible outcomes already been factored into investors’ decision-making and market prices?

“With that in mind, 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.

“My forecast for the Election? The Tories win a workable majority and all talk of a hung parliament is forgotten.”

Buxton says the strong UK market rebound has been underpinned by the global economic recovery and effective cost-cutting as the majority of UK quoted companies’ earnings are derived from outside the country.

Neil Veitch, manager of 2009’s top performing SVM UK Opportunities fund, agrees with Buxton, believing the local stock market is now largely driven by the global economy.

“I think the headwinds posed by the Election, such as the hung parliament, has been fully discounted by the market,” Veitch says.

“The Election may be big news to us here, but for equities it is largely irrelevant. The market is so international now in terms of earnings; its path will be determined by what is happening globally.”

LV= head of UK equities Graham Ashby believes markets are generally immune to elections. “History tells us there is very little correlation between the UK economy and the markets,” he says.

“There have been quite a lot of column inches written about the impact of this Election, but sterling and the gilt markets have been relatively stable for some time. As the UK markets are quite well diversified, the impact will be minimal.”

M&G fixed income manager Richard Woolnough says, while a hung parliament is perceived to be a disaster for the currency and government bonds, he expects a resolution on the future of economic policy in any event.

“A hung parliament is not likely to lead to further indecision, and delaying of policy implementation,” he says.

“Like a clear victory, even a hung parliament should provide a catalyst for change, and a collapse in risk premiums that could benefit both sterling and the gilt market.”