CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 62% of retail investor accounts lose money when trading CFDs with this provider (Saxo Bank). You should consider whether you understand how CFDs, FX or any of our other products work and whether you can afford to take the high risk of losing your money.
Clearly influenced by polling data, rightly or wrongly, investors appear to be ignoring the 12th December General Election.
The companies most impacted by the nationalization plans of a Jeremy Corbyn led Labour government, BT Group, Go Ahead Group, National Grid, Pennon, Royal Mail, Severn Trent, Stagecoach have moved up in the election run-up (see below). This suggests investors are not viewing a Corbyn government as a likely outcome.
Elections/ referendums amount to binary risk, on one side there is a vote for change, on the other for no change. Both the Scottish and “Brexit” referendums amounted to a choice, either stasis, or meaningful change necessitating short-term business disruption/ uncertainty.
On the face of it, election/ referendum risk involves net downside risk necessitating a risk premium. But once again, markets appear to be talking about the outcome they want (Conservative majority) now, and will price in any deviation from this desired outcome on the 13th December.
Investors are so far, differentiating the 2019 election from 2017 possibly on the grounds of i) lack of movement in the 2019 polls v the momentum in 2017 in Labour’s favour ii) well documented limited ‘political’ appetite / exhaustion with ‘Brexit’ owing to the stumbles of the 2017-2019 hung parliament iii) more reasonable expectations (in 2017 expectations for Labour were low and Conservative forecasts were far too high). iv) impact of tactical voting – recent polls found almost 25% of voters were ready to vote tactically and higher proportion of voting public actually voting – a higher percentage of young voters is typically positive for Labour with the converse also true.
Since the 2017 election significant political upheaval has resulted in party purges, resignations, MP’s switching to other parties. The movement in MPs since 2017 demonstrates the increased polarity of politics.
|Party||2017 Election||2019 MPs||MP Movement|
We are concerned at the mobile Conservative vote in Scotland and a possible SNP/ Lib Dem resurgence. In 2017 the Conservative vote in Scotland went from 1 to 13 whilst the SNP declined to 35 from 54. However a 2019 reversal in Scotland would leave a Conservatives totally reliant on the English marginal seats (c. 97 seats in 2017 were won by a 5% or less margin). An SNP surge would also impact both Labour (7 seats) and Liberal Democrats (4 seats).
Using MP movements as a pointer a Lib-Dem surge in 2019 is a likely outcome, leaving a Conservative majority harder to achieve if there is significant tactical voting which would eat into Conservative marginal seats particularly in London.
Getting to a majority government (325 seats) is going to be hard for the big parties. If Scotland (59 seats) and Northern Ireland (18 seats) are taken out of the equation this leaves 573 seats in England and Wales hence implying a Conservative majority government would require 56.7% share of the vote from current levels of c. 49.7%. Whilst a Conservative majority is possible, it is likely to be a very small majority (possibly under 10 seats).
Using an expected value approach, assuming a linear outcome around the mean outcome of “Hung parliament” the implied probabilities are as follows:-
Source: CSS Investments plc
It is early days in the 2019 campaign and we expect the polls will narrow. But UK investors appear to be relaxed, so far and cognizant of possible permutations.
If the current political environment were expressed in a Venn diagram the upcoming UK general election would be a subset of the “Brexit” blob – and totally independent of other significant political issues, i.e. the Sino-US trade talks, Hong Kong unrest, Impeachment trial, 2020 Presidential election dominating capital markets. So political noise is not going away after December.
To summarise :-
Please be aware that the following disclosures of Material Interests are relevant to this research note:
BT Group Relevant disclosures: <2>
Go Ahead Group Relevant disclosures: <2>
National Grid Relevant disclosures: <2>
Pennon Relevant disclosures: <2>
Royal Mail Relevant disclosures: <2>
Stagecoach Relevant disclosures: <1,2>
The report’s author certifies that this research report accurately states his personal views about the subject securities, which is reflected in the ratings as well as the substance of the reports.
Collins Sarri Statham Investments Ltd (CSS) does not in any of its publications take into account any particular recipient's investment objectives, financial situation, and specific needs and demands. Therefore, all CSS publications are, unless otherwise specifically stated, intended for informational and/or marketing purposes only.CSS shall not be responsible for any loss arising from any investment based on a perceived recommendation.
No publication (including recommendations) shall be construed as a representation or warranty that the recipient will profit, nor avoid sustaining losses, from trading in accordance with a trading strategy set forth in a publication.
This research is non-independent and is classified as a Marketing Communication under FCA rules detailed in their Conduct of Business Rulebook (COBS). As such it has not been prepared in accordance with legal requirements designed to promote independence of investment research and it is not subject to the prohibition of dealing ahead of the dissemination of investment research outlined in COBS 12.2.18.
Trading in the products and services offered by Collins Sarri Statham Investments Ltd (CSS) may, result in losses as well as profits as the value of investments may go down as well as up. You may not get back the full amount you have invested. Any reference to past performance should not be viewed as an indication of any future performance. Investments held in overseas markets are subject to the effects of changes in exchange rates which will impact on the value of the underlying investment. Investments made in AIM and penny shares carry an increased risk due to the difficulty in creating a market in these shares. There may be a substantial difference in the buy and sell price. Leveraged products such as Contracts for Difference (CFDs), derivatives, commodities & Foreign Exchange (FX), carry a higher risk to your capital and they can lose their value rapidly.
The information contained herein is based on materials and sources that we believe to be reliable however we make no representation or warranty, either express or implied, in relation to the accuracy, completeness or reliability of the information contained herein. Please note that the figures shown may, in some instances, be rounded to the nearest penny. Prices can move sharply from those quoted in this document. Current prices can be verified by calling one of our brokers. CSS is under no obligation to update the information contained herein. Neither CSS, nor its affiliates, nor its employees shall have any liability whatsoever for any indirect or consequential loss or damage arising from the use of this document.