When the FTSE 100 starts trading at 8am on 5 July, investors will know who the country has elected as prime minister.
If the polls are to be believed, it will be either Rishi Sunak or Sir Keir Starmer. The latter is the firm favourite, but predictions have been wrong before.
A history lesson
Prior to today, there have been nine general elections during the Footsie’s existence. And as the table below shows, following eight of these the index increased the day after polling.
| Date of election | Prime Minister | Change in the FTSE 100 on the day after the election (%) |
|---|---|---|
| 11 June 1987 | Margaret Thatcher | +1.8 |
| 9 April 1992 | John Major | +5.6 |
| 1 May 1997 | Tony Blair | +0.2 |
| 7 June 2001 | Tony Blair | +0.1 |
| 5 May 2005 | Tony Blair | +0.3 |
| 6 May 2010 | David Cameron | -2.6 |
| 7 May 2015 | David Cameron | +2.3 |
| 8 June 2017 | Theresa May | +1.0 |
| 12 December 2019 | Boris Johnson | +1.1 |
The only exception to this was in 2010, when David Cameron failed to secure an overall majority. He then entered into a series of negotiations with the Liberal Democrats with a view to forming a coalition.
This supports the idea that investors don’t like uncertainty.
Indeed, when Boris Johnson was elected in 2019 — a campaign that was dominated by the promise to “Get Brexit Done” — there appeared to be a collective sigh of relief in the City.
I think it’s fair to say that the majority of investors didn’t welcome the idea of the UK leaving the European Union. But despite this, the prospect of removing the uncertainty surrounding Britain’s future trading relationship with Europe was positively received — the index increased 1.1% on the day after the election.
Volatility
Economic theory implies that greater levels of uncertainty leads to investors demanding bigger discounts. This causes individual stock prices — and the wider market — to become more volatile.
Shareholders in NatWest Group (LSE:NWG) have seen more ups and downs than most. According to TradingView, the bank’s stock is the third most volatile in the FTSE 100. And politics has a part to play.
As a legacy of the 2008 financial crisis, the government still holds a 20.9% stake. In the final budget before the election, the Conservative chancellor of the exchequer, Jeremy Hunt, announced plans to dispose of the shareholding by way of a retail offer to the public. According to The Guardian, a TV advert was subsequently filmed promoting the sale.
However, the election led to the plans being shelved. And during the campaign, Labour refused to commit to the sale. It said it would “review the details” if it was elected.
With such a large number of shares to dispose of there’s a possibility they will be offered at a discount to the current market price. After all, if members of the public want to buy the bank’s stock they could easily do so now.
Personally, I’d have to do a lot more research before coming to a firm conclusion. But at first glance, now could be a good time to think about investing.
If the analysts are right, income, the net interest margin and earnings per share should all increase between now and 2026.
And although dividends are never guaranteed, the shares are presently yielding 5.3%.
However, I’m conscious that the bank’s profits could be affected by increased bad loans as a result of a wider economic downturn.
A prediction
Unless there’s a hung parliament, history suggests that the FTSE 100 will see modest gains tomorrow.
As for the NatWest share price, I have no idea!
However, it doesn’t really matter how either will react. That’s because, in my opinion, successful investing is all about taking a long-term view.
This post was originally published on Motley Fool
