Here we are then – today is voting day for the general election. It seems an eternity ago when (on 29 October) Parliament managed to get the needed votes to hold the election. After a vigorous month of campaigning, we now sit and wait for the results.
From an investor’s point of view we need to take this a step further. An old friend frequently reminds me that “volatility presents opportunity”, and this is a perfect case in point. So what musings can we make about the price of the FTSE 100 index, and the firms within it, as we await the exit poll and results?
Open for business?
The immediate issue facing investors is that the FTSE 100 index (and by extension the London Stock Exchange) is closed when the exit poll comes out. Today the market will close as normal at 16:30, and the exit poll is expected as usual at 22:00. As the exit poll is usually a good barometer of the actual result, UK assets would see a move at this point. As the stock market is closed, expect to see the move in the British pound (GBP), as the foreign exchange markets are open 24 hours a day.
The FTSE 100 will open as normal at 08:00 on Friday morning. This is tough – as the overall result could come through anytime between 06:00 and 09:00. This may be before the market opens, or not.
The bottom line is that depending on your viewpoint of the outcome of the election, you will likely need to either buy or sell the shares you own TODAY before the market closes, in order not to miss out on the move.
Time to worry?
I would say that whether you should worry or not depends on your view on the outcome of the election, and of correlated asset classes. As discussed in more depth here, a Conservative majority would be likely seen as pro-business, whereas a Labour majority would be seen as the opposite. A hung Parliament would likely be negative for the FTSE 100 as it causes more uncertainty.
Regarding correlated asset classes, think about the British pound. If you own shares in firms within the FTSE 100 index that are large exporters, then a Conservative majority (GBP positive) could actually see the share price of the exporter fall, as the earnings it repatriates back into GBP is now worth less.
On the flip side, if you own shares in an importer who has been hampered due to the weak pound, a spike in the value of GBP at the 22:00 exit poll could mean good news for you when the London Stock Exchange opens at 08:00, as some of the shackles have been cast off.
Overall, if you are worried about the potential impact on the FTSE 100 due to the election, take action before the market closes today. The decision should be a personal one; for example, my exposure is largely in domestic firms, and I think there will be a Conservative majority, therefore I am not too worried. Yet, this is my personal view – everyone is different.
