The UK stock market has performed better under Conservative governments than Labour governments, shows new research from Bowmore Asset Management.
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.
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%.
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.”
“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.”
“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.”
“While there are examples of government policy contributing to long term rises in the stock market – most notably, Thatcher’s Big Bang – they should be getting rarer. In a globalised economy stock market performance should be more heavily influenced by macro trends that are now outside the influence of the Government.”
“However, politicians are more than capable of throwing some curveballs such as Liz Truss’ Budget.”
“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.”
Jonathan says that one of the issues that UK stock market investors will be looking at is the capacity of the government to increase its borrowing.
Adds Jonathan: “The next Government’s room for manoeuvre in relatively restricted. The Bank of England is unlikely to help through quantitative easing and the cost of COVID-19 support mean that the UK finances are relatively stretched. Investors are now wary of uncosted giveaways.”
Average FTSE All Share Index growth per annum by party of government
Average FTSE All Share change per annum by government
