The UK stock market has performed better under Conservative Prime Ministers than Labour ones – unless that PM is Liz Truss, research for the Evening Standard shows.
As an election approaches and the stock market generally regarded as in the doldrums, investors beyond the City will be looking for evidence of how their shares might fare under a new government.
Research from Bowmore Asset Management shows that the UK stock market (FTSE All Share Index) has grown by an annualised average of 4.9% per annum under Conservative governments since 1983, faster than the 3.9% per annum growth under Labour governments.
Over time, that 1% gap would turn into a far bigger pension or savings pot.
While Labour has gone to great lengths to win over big business and the City and has promised to adopt a pragmatic approach to regulation, it has said little about equity prices.
While the Tories are struggling in the polls, it has good reason to regard the City as a natural supporter so these figures will offer some relief to Rishi Sunak and colleagues.
Bowmore’s research shows that the FTSE All Share Index grew at its fastest annualised rate in the last 40 years during Margaret Thatcher’s second term in power from June 1983 to June 1987. During that period, the index grew more than 2.5 times, with an average per annum growth of 38.2%.
Thatcher was the PM who oversaw the so-called Big Bang of 1983 that deregulated financial markets and led to the change from open outcry to screen-based electronic trading. This was controversial at the time, but is now widely regarded as progressive and indeed inevitable.
The worst-performing government in stock market terms was Liz Truss’s short-lived administration. The FTSE All Share Index fell by 4.2% during its 49 days in power, equalling a theoretical annualised average of -31.3%.
Jonathan Webster-Smith, Chief Investment Officer at Bowmore Asset Management says: “Both UK and overseas investors will be trying to work out what a change in government means for the UK stock market. Conservative governments have presided over better stock market performance on average – but only by a relatively narrowly margin.”
Some investors say governments have little influence on share prices in reality. They note that interest rates are more significant. If they are low, investors prefer equities, if they are high, bonds are seen as a better, safer bet.
“While there are examples of government policy contributing to rises in the stock market – most notably, Thatcher’s Big Bang – they are quite rare. Stock market performance is more often influenced by the interest rate cycle than by anything a government has done,” said Webster-Smith.
“Even the second Thatcher government at the top of the table ended just a matter of weeks before Black Monday in 1987. Its performance would look a lot worse if that were taken into account.”
There is also an election in the US this year, most likely pitting Donald Trump against incumbent Joe Biden. Wall Street tends to lean Republican.
Webster-Smith adds: “In the United States, Donald Trump’s 2017 Tax Cuts and Jobs Act sharply reduced taxes for businesses, contributing to a sharp rise in US share prices, as well as increased dividends and share buybacks.”
