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What should stock investors do in the run-up to the general election?

As anyone who hasn’t been living under a rock knows by now, there will be a general election in the UK on 12 December. What does this mean for investors, and how should they position themselves in the run-up to the big day? Here are the potential outcomes that could occur, what investors should and shouldn’t do about them. 

What are the possible outcomes?

My colleague Jonathan Smith recently wrote a brief explainer on how Conservative and Labour governments have been perceived by the market in the past. Generally speaking, the Tories are viewed as the more pro-business party, although this has not always been the case – during the Tony Blair years, Labour’s centre-left stance was seen as acceptable to investors. 

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Jeremy Corbyn’s Labour party is a different beast – it is generally perceived as being actively hostile towards big business, and in particular towards the financial sector, which accounts for 6.9% of total economic output. Corbyn has, at various points, proposed a ‘Robin Hood’ tax on financial transactions to curb trading profits, as well as re-nationalisation of much of the UK’s infrastructure, including energy networks, rail companies, water supply systems, and mail delivery. Such plans would likely see shareholders having to sell their holdings at substantial discounts to their current prices. 

So what are the various election outcomes? Prime Minister Boris Johnson clearly believes that a general election is his best shot at getting a majority in Parliament, as well as an excuse to get rid of some rebel Tories.

Most importantly, he wants to secure an outright majority that would mean not having to rely on the Northern Irish Democratic Unionist Party (DUP) for support on key Brexit votes. He will be aided in this by Brexit Party Leader Nigel Farage, who has pledged to not run candidates in Conservative swing constituencies, instead focusing his energy on targeting Labour seats. The latest polls have the Tories with a 10+ point lead, but there are still more than five weeks of campaigning left. 

This issue is complicated by the Brexit elephant in the room. Labour has attempted to hedge their bets by not throwing their weight entirely behind Remain, leaving the door open for parties like the Liberal Democrats to brand themselves as the standard-bearers for the anti-Brexit movement. This risks splitting the Remain vote, making the Prime Minister’s job all the simpler.

Key takeaways

So what should investors do about all this? Predicting macroeconomic and political events is close to impossible, so you should definitely not buy or sell stocks based on what you think might happen.

Instead, focus on adding cheaply valued stocks to your Stocks and Shares ISA that will perform well regardless of the political environment. Make sure to analyse factors like price-to-earnings, dividend yield, and debt ratio to make sure that you are picking up companies that will serve you well even in a downturn.

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Neither Stepan nor The Motley Fool UK have a position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.