Markets surge as Conservatives secure surprise general election victory, says Trevor Green

May 2015

Key points

  • Shock win for the conservatives triggers a surge in UK equities, bonds and sterling.
  • In the short term we expect investors to refocus on prospects for the domestic economy.
  • Bouts of market volatility are likely as US and UK interest rate rises near.
 

UK equities, bonds and sterling rose sharply as the Conservative Party won the general election. This took political pundits and financial markets, which had been expecting another hung parliament, by surprise. Shares in gaming companies, housebuilders and banks were among the biggest winners, as the threat of regulatory or other major changes from an incoming Labour administration evaporated.

Now the general election is out of the way, we expect investors to refocus on the domestic economy’s prospects. Improving jobs data, company earnings and consumer spending numbers all point to decent economic growth in 2015 and so support the near-term outlook for the asset class.

UK equities should also be supported by the reasonably positive outlook for the global economy. Despite some soft data in the US earlier in the year, we expect its economy to strengthen in 2015. Inflation is likely to remain low in the ‘developed’ world, and last year’s collapse in oil prices should support economic growth in most countries by boosting consumers’ spending power. That in turn should feed through into higher company profits. However, bouts of volatility are likely in coming months in the run up to higher interest rates in the US and UK.