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Will the FTSE 100 go over 7,500 after the election?

Tezcan Gecgil, PhD
View of Canary Wharf

It was in May 2017 that Britain’s benchmark index closed over 7,500 for the first time. Since then, the FTSE 100 has traded between about 6,700 and 7,800. Now it is hovering around 7,300. 

As the 12 December election date approaches, many investors are wondering if the index may once again go and stay over 7,500. Let us take a closer look…

Could a post-election rally be on the cards?

The FTSE 100 share index is likely to be quite choppy in the next few weeks leading up to the election. 

Every UK election since 1922 has been won by either the Conservatives or Labour. In previous elections, the City has generally taken a gloomy view of how stock markets would react to a Labour win. And we are currently hearing similar echoes. However, Brexit complicates how shares may fare on the morning of 13 December.

Initial polls point to a possible hung parliament, but the final result may be a complete surprise.

Yet, when we have more clarity after the election, the markets are likely to take a calmer view in anticipation of a new (or nearly new) government.

And if history is any guide, we may even have a possible post-election relief rally, that may well push the FTSE 100 over the 7,500 level once again. 

I personally believe that UK markets are likely to begin to rise in the week preceding the election. I am especially expecting the FTSE 250, UK’s mid-cap stock index, to start to go up as as investors would be buying into domestically-focused shares.

But you might have a different view to me.

Renationalisation

The FTSE 100’s level on December 13 is not the only thing on investor’s minds at the moment. In the coming days, if the renationalisation discourse by Labour intensifies, then companies in several industries may be affected.

Investors are already beginning to wonder about the fate of utilities such as National Grid and SSE, or water companies United Utilities and Severn Trent, as well as the telco giant BT Group. Shares of UK-focused banks, such as Lloyds Bank and Royal Bank of Scotland, may also come under increased pressure, due to the risk-premium associated with the possibility of renationalisation.

Here is a historical note: prior to the 1987 election, BT’s share price fluctuated daily as polls showed Labour could possibly win. However, when the Conservatives won, both the markets and BT share price went up.

Therefore, I’d not necessarily believe that getting out of these shares completely now would be the ideal case for long-term portfolios.

Foolish takeaway

Despite the political uncertainty, it is crucial to keep a clear focus on investment goals, including a comfortable retirement.

Not only before an election, but in general, I’d regularly review my portfolio with an eye to diversifying. Diversification, either by sector or geography, may provide a relatively defensive investment opportunity.

Our readers who may not be quite sure as to how to diversify may consider buying a FTSE 100 or FTSE 250 tracker fund or the FTSE All-World ETF that tracks the performance of a large number of stocks worldwide. If you are interested in dividend stocks, then the iShares UK Dividend UCITS ETF may also be a possibility.

A share portfolio constructed of different kinds of companies, sectors, and regions, may enable most investors to ride out the volatility of the stock market better.

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tezcang has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. 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.

Motley Fool UK 2019