On December 12, 2019, Britain will finally witness an election, which was badly needed since June 09, 2017, the day on which the ex-Prime Minister Theresa May experienced her speculative bet to conduct a snap election misfired. Her plan was to extend her small majority at the House of Commons to above 100 seats. In lieu, she lost some seats to the opposition Labour party, and it made the delivery of any kind of UK's exit from the EU bloc impossible.
Now PM Johnson is going to contest the same snap election on December 12, 2019 as his effort wasn’t enough to get consent for Brexit through the British Parliament. Despite having negotiated a deal done with the EU administrators, he doesn't have enough strength at the House of Commons to get his deal approved through the British Parliament. Conducting another snap election to secure a majority at the Parliament is the only possible alternative to deliver on Brexit.
However, the day the announcement was made by PM Johnson, London Stock Exchange-traded securities reacted positively, as it seemed that this would help to break this long-standing political deadlock over the UK’s departure from the European Union.
Also, opinion polls have reflected higher probability for Boris Johnson-led government to lead over opposition leader Jeremy Corbyn, but the actual result is far from certain in light of recent electoral shocks and heightening unpredictable behaviour of voters.
However, in the opinion polls conducted on October 29- 30, 2019, it was predicted that there is a 50% probability of PM Johnson-led Tories winning a majority at the House of Commons, a 42.5% chance of a hung parliament, and a 5.5% chance of a Labour party majority.
The increasing concern for the market is what the result means for a long-drawn-out and withheld withdrawal process. However, there are many price-sensitive policy initiatives that may play a crucial role for several sectors and companies as well.
PM Johnson, since the beginning of his tenure as British PM, has kept on promising to deliver Brexit at any cost by October 31, 2019. He not only risks further delay of withdrawal but also chances of losing Brexit altogether. Although, right now he enjoys popular support, but a lot can turn against him during the election in a similar fashion to what happened with Theresa May earlier.
Let’s decode the potential outcomes of the Pre-Xmas General Election:
PM Johnson Gets Thumping Majority in the House of Commons
A potential thumping majority for Boris Johnson-led government is widely recognised as most market-friendly and is likely to have favourable impacts on the London Stock Exchange-traded mid-cap stocks and could weigh on US Dollar dominated blue-chip stocks. As with absolute majority, Mr. Johnson would be able to push through the Brexit deal that he has negotiated with the EU bloc.
In case Conservative party coming to power with a majority this Christmas, it would boost UK’s housebuilders like Persimmon Plc (LSE: PSN), Barratt Developments Plc (LSE: BDEV), MJ Gleeson Plc (LSE: GLE) and many others, and housebuilding sector could also benefit from planned tax cuts to facilitate first-time home buyers.
Also, domestic banks of the UK like Lloyds Banking Group Plc (LSE: LLOY), Royal Bank of Scotland Group Plc (LSE: RBS), are also estimated to perform well as business, and economic conditions will improve.
Jeremy Corbyn-led Labour party bags absolute majority
Despite the fact that opinion polls have given the very small probability for Labour party attaining absolute majority in the December 2019 General Election, if it happens, it will be a big surprise for the UK's financial markets. This is because the Labour party's broader manifesto is comparatively radical. It wants to steer UK's economy in the opposite direction through large-level Nationalization, tax rate hikes, stringent reforms and regulations for the country’s businesses.
Sectors which are experiencing higher risks over the potential victory of Jeremy Corbyn are water, gas, electric utilities, transport, and defence and including Royal Mail Plc (LSE: RMG), provided Labour party's pledge to nationalise it and that too at below-market rates, according to the sources.
And same could take place with defence sector stocks, given Labour party's disinclination towards higher military spending. Stocks that could be considerably affected are BAE Systems Plc (LSE: BAE), Qinetiq Group Plc (LSE: QQ), and Babcock International Group Plc (LSE: BAB), respectively.
Also, the UK's financial sector could be hit inversely in the wake of stringent regulation and higher tax rates, but this will have minimal impact on banks having considerable international exposure.
No One Gets Majority – A Hung Parliament
In case no-one gets an absolute majority at the House of Commons, it will also have an adverse effect on the British economy as it will further invoke Brexit-related uncertainty and that will lead to a prolonged political crisis in Britain, the most since World War II. It will immediately affect retailing and other businesses, for whom Christmas sale is vital.
The King Maker – Scottish National Party
Since the beginning, the Scottish National Party has overwhelmingly backed the “Remain Campaign” and many expect them to do well in the December 12 General Elections, with firm anti-withdrawal stance. In case of any alliance including Scottish National Party, the SNP's elected MPs will seek for another referendum for Scotland in 2020, which could weigh on the British Pound and Scotland-headquartered companies like Royal Bank of Scotland Group Plc (LSE: RBS) and Standard Life Aberdeen Plc (LSE:SLA).
We believe that the conservative may secure a considerable majority in the House of Commons, which will allow the implementation of already negotiated Brexit deal with EU. This will lower uncertainties, lift the Pound Sterling, guarantee British access to Europe on freshly negotiated terms and boost consumer sentiment.
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