Election worries have been front and centre for investors in recent weeks, from the increasing popularity of the right-wing RN (Rassemblement National) in France to the panic in the US Democratic Party after president Joe Biden’s disastrous political debate with Donald Trump.

By contrast, the UK election was a far less contentious affair with the pundits correctly forecasting a landslide Labour win.

While Labour’s circa 176 seat majority turned out to be in line with the polls, behind the headline numbers the victory appears to be more rejection of the Conservatives than outright support for Labour.

According to analysis by Berenberg, Labour’s victory was the lowest winning percentage for more than 100 years while the percentage of people voting was one of the lowest on record. Labour won 34% share of a roughly 60% turnout which means they won a landslide with around 20% of total potential votes.

From a market perspective the victory looks to be well received by investors with all the indices rising and mid-caps putting in a strong performance. A period of relative political stability should be positive for beaten-down UK stocks.

Berenberg highlights potentially better relations with the EU and a reform of planning rules as positives for UK growth. Meanwhile the Bank of England is now unencumbered by politics meaning it can begin cutting interest rates as soon as August.

There is plenty of room for UK stocks to continue their recovery despite their modest re-rating, given how cheap UK stocks trade relative to the world.

In her first speech as chancellor, Rachel Reeves has promised to loosen planning rules and lift a ban on offshore wind in England. Berenberg is forecasting a 6% increase in housing starts every year between 2025 and the end of the decade.

Relative stability here in the UK contrasts with a complex picture on the continent after news of a hung parliament in France following the second round of voting on 7 July. French stocks reacted positively because the result was seen as a better outcome than an outright right-wing government.

The fragmented political landscape means the left, right and centre parties will be seeking out common ground and potential coalitions. Economically, the picture is one of gridlock where extreme policies are likely to be watered down.

Portfolio manager Jamie Ross at Janus Henderson believes a ‘left’ coalition is more troublesome for markets given the risk of a rise in government spending and a worsening relationship with the EU.

A broad ‘grand’ coalition representing parties from the left and right is seen as the most favourable for markets. 

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