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Politics could be the FTSE 100’s nemesis in 2017

Photo: Davide D'Amico. Arrow overlaid. Licence: https://creativecommons.org/licenses/by-sa/2.0/

The next year is likely to be an extremely turbulent time for UK politics. The government hasn’t even invoked Article 50 of The Lisbon Treaty and already there’s robust debate regarding the role Parliament will have in the process of Brexit. Add to this the challenges posed by the Brexit negotiations themselves as well as the potential uncertainty from a Trump presidency and 2017 could be an exceptionally volatile year. This could hurt the FTSE 100’s performance.

While the UK voted for Brexit on 23 June, politicians continue to debate whether another referendum is needed. They also apparently wish to vote on the terms of the negotiation and how the UK should approach them. While this may be a good idea in theory, the reality is that it’s likely to only exacerbate the uncertainty the economy faces.

In addition, the Scottish government has stated that because Scotland voted to remain in the EU, it should be able to do so. Whether you agree with this or not, the impact of it is yet more uncertainty for the UK. It could even increase the chances of a second Scottish independence referendum, which could cause further deterioration in investor confidence towards Scotland and the rest of the UK.

Back to the polls?

As such, it would be unsurprising for Theresa May to decide that a General Election is a good idea. After all, she has only a slim majority at the present time and with so many different opinions and viewpoints on how the government should proceed, a fresh mandate may be helpful. Her position is likely to be strengthened versus the 2015 General Election, since the Conservative Party has a considerable lead over Labour in the polls. Therefore, on a purely logical basis, a General Election seems like the obvious path to take.

Of course, if a General Election is called, it would be akin to another vote on Brexit. It seems likely that at least one of the major parties will campaign for the UK to stay in the EU. Therefore, not only could there be a change in government, there could be a change in the UK’s position regarding its EU membership.

All of this would be likely to hurt the FTSE 100, since investor confidence in the UK and its economy would be likely to deteriorate. As mentioned, the UK already faces Brexit uncertainty and the unpredictability of a new US commander-in-chief. With that in mind, the FTSE 100 could struggle in the early part of next year and this could create a buying opportunity for long-term investors. As ever, short-term paper losses may be on the cards, but the opportunity to buy high quality stocks at low prices could prove to be too good to miss.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.