Here’s how a snap general election could be seriously good for investors

So the FTSE 100 has fallen back a bit since Prime Minister Theresa May called a snap election, has it?

The pound has picked up, and that’s about all that lies behind it. The companies listed in London are valued on the wider international stage effectively in dollars, regardless of what currency they actually report in, which is why indices move in the opposite direction to the pound — after all, the fall in the pound following the Brexit vote was the main force behind the FTSE’s rise over the past months.

The election is widely expected to yield an increased Conservative majority, and the international confidence inspired by a stronger government is almost certainly behind the rise in sterling, but what does it mean for investors?

Short-term bargains

In the short term, a downward dip in the FTSE gives us a nice opportunity to top up on our shares — not as great as the big dip that followed the referendum, but still welcome. But it’s the long term that really counts, and I reckon an election now will bring significant benefits for shareholders in the years before and following our exit from the EU.

Now, I reckon the vote to leave the EU was a big economic mistake — but the decision is made and there’s no going back. We have to make the most of the bad hand we’ve been dealt.

We should treat Brexit as almost the only thing that matters, and many believe the best possible outcome from the election is a strengthened moderate Conservative majority. 

With a tiny majority right now, there’s a real fear that hardline eurosceptic backbenchers and those still hanging on to the Remain ideal could scupper the UK’s chances of getting the best possible deal in our negotiations — any delay to any part of the necessary dealings could make an already-tough two-year timescale impossible to meet.

We need a good deal

Hardliners pushing the “no deal is better than a bad deal” mantra could be the biggest danger currently facing the future of the UK’s public listed companies.

Leaving with no deal at all and having to face life under default World Trade Organisation rules on tariffs would be disastrous. It would kill any competitive advantage that British companies selling to and trading in the EU might currently enjoy. And though a better tariff agreement would surely be hammered out eventually, the damage would be done, and consumers and business partners would have switched to European competitors.

No, we desperately need to get the best deal on tariffs that we can — ideally no tariffs at all, but I’m probably being naive to hope for that. Because, as every economics student knows, tariffs harm both sides and ultimately do nobody any long-term good — they push up consumer prices, and they protect uncompetitive business that should be working harder to compete.

The truth is, most Conservatives, certainly the rank-and-file moderates, are very business-friendly, and what they want is the best deal possible for companies on both sides of the divide.

So, even though it pains my political ideals, for the sake of our long-term investing future I’m hoping for a strong majority of Conservative moderates — and I’m convinced that’s what we’re going to get.

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