The general election is on for December 12th, which means we will know the result on Friday 13th. Should investors be scared?
Should investors fear December, Friday 13th, 2019?
If the Tories win the election outright then the UK will probably leave the EU no later than 31st January 2020, maybe sooner. The deal Boris Johnson has negotiated with the EU will probably stand. But, and this has received very little attention, there will then be a transition period, which Mr Johnson insists will end in December 2020, with or without some kind of trade deal with the EU. Those who say, ‘let’s just leave and get on with it’, don’t appreciate that it just won’t be that simple. Brexit will continue to dominate the media headlines for many years.
So, returning to what it means if the Tories win outright, once the transition period ends in December next year, the UK will probably have a deal with the EU, but might not. Capital Economics puts the odds of leaving with a deal versus no deal at the end of 2020 at 70/30.
In short, there will be another year of uncertainty, companies will continue to hold more inventory than normal, meaning their cashflow will be stretched. Sterling will float in that no man’s area, also called ‘we don’t know.’
What are the odds of the Tories winning outright? I suspect that this will only happen if they agree some kind of electoral pact with the Brexit party not to run against each other in certain seats.
Looking beyond Brexit, there is a belief that the Tories present a more business friendly agenda, which I suppose means that, Brexit aside, a victory for them would be better for investors — look, I am just the messenger, I am not saying I agree, I merely report what I hear.
If Labour wins, Corbyn will probably try and negotiate a softer Brexit, and will then probably call a second Referendum to vote on it. In such circumstances, either no-Brexit or soft-Brexit becomes more likely, which, according to the more commonly accepted narrative, will be good for business and the economy and indeed, sterling. But the commonly accepted narrative also says Labour advances a business unfriendly agenda, which could be bad for investors.
In short, following these commonly accepted views on the business implications of Brexit and both Tory and Labour policies, this means as follows:
- Brexit related hit on business/investors — bad.
- Other policies impact on business/investors — good.
If Labour win:
- Brexit policies related impact on business/investors — good.
- Other impact on business/investors — bad.
But I think an outright win for either Labour or the Tories is unlikely.
The Tory strategy is to go for the Brexit voting electorate, hope that the Remain voting traditional Conservative voters stay loyal, and make the Brexit Party irrelevant
The Labour Party is trying to appeal to natural Labour supporters, regardless of their views on Brexit.
Given the Brexit stance taken by the Tories, I think the Brexit party will try and win over traditional Labour voters who are strong Leavers.
That leaves the Liberal Democrats, Greens and SNP — well, I am thinking a SNP landslide in Scotland is inevitable. I wonder whether the Greens and Lib Dems will collaborate, which probably means that, unless the Greens learn how to clone Caroline Lucas, they won’t field candidates where there is a chance of a Lib Dem victory.
Personally, I think a hung parliament is by far and away the most likely outcome. This means a coalition partly with either Lib Dems or Brexit Party representation.
In the event of a Labour/Lib Dem coalition, I would not be surprised if the Lib Dems were the party with the larger number of seats.
A coalition consisting of Labour and the Lib Dems would mean a second referendum and the possibility of no Brexit. Setting aside Brexit, a Labour/Lib Dem government would be slightly more business/investor friendly than a Labour only government — in my opinion.
A Tory Lib Dem pact would also entail a second referendum. Given the criticisms they received after the last coalition government, the Lib Dems are likely to be less obliging than they were in 2010.
The final alternative is for a Tory/Brexit Party coalition, in which Nigel Farage is given a Cabinet posting. Since I don’t want my views censored by compliance, and I am not allowed to use expletives, I will keep my opinion on that one to myself.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees