Home Stock & Shares Johnson Election Victory Sparks Santa Rally As British Stocks Have Their Best Day In 3 Years

Johnson Election Victory Sparks Santa Rally As British Stocks Have Their Best Day In 3 Years

by Jonathan Adams
Stocks

The companies listed on the London Stock Exchange yesterday enjoyed their most positive day in more than 3 years as the FTSE 100 gained 2.25%, or 166 points, to close the session at 7519. Investors are decisively noting their approval of the certainty that a strong Tory majority elected on a ‘get Brexit done’ ticket has provided.

Stock market analysts believe there is now a high chance of the rally continuing over the next few days. Institutional investors and individuals investing online are upgrading their economic outlook with the most positivity since the Brexit referendum result back in 2016. Yesterday’s gains were also the best since that shock referendum decision for the UK to revoke its membership of the political and economic union.

And it wasn’t only the FTSE 100, dominated by large international companies that earn a majority of their revenues abroad, that was on the up yesterday. The FTSE 250, comprised of the next 250 largest companies on the LSE after the 100 that make up the FTSE 100, also gained 1.9% with a 413-point climb to 21,920.69. The FTSE 250 index is considered a better reflection of sentiment towards the domestic UK economy, with many more of its constituents earning most of their income at home in pound sterling.

Despite the fact that a significant Conservative majority, the largest since the Thatcher era, gives the government the power to push ahead with a no-deal Brexit, Bank of England governor Mark Carney stated last night the chances of that happening has actually dropped. Or at least, the probability of a “disorderly” no-deal Brexit is considered, by analysts, to have receded.

Carney believes that the strengthened position of the government, and its intentions, will allow it to better negotiate with the EU. And in the worst case scenario, a deal that involves temporary trade terms to keep vital imports flowing, as well as protecting the interests of EU nationals in the UK and Brits living in the EU, should also be better manageable.

The result of that renewed optimism is London-listed companies rebounding from the uncertainty penalty imposed by investors over the past few years. Quoted in The Times, Panmure Gordon’s chief economist Simon French commented:

“The UK equity market has been out of favour for three and a half years. That has started to change over the last couple of days.”

Mr French added that he feels the post-election rally “could probably go on for a little while longer”.

Goldman Sachs analysts share that optimistic outlook, yesterday predicting that shares in UK-focused companies are likely to benefit in the coming weeks. In a note to its clients, the investment bank wrote:

“Clarity on the UK’s terms of exit from the EU should unlock pent-up business investment.”

Goldman Sachs also noted that it believed UK-listed stocks are, as a result of a ‘Brexit discount’ in place since the referendum, around 20% undervalued compared to where they would have been without the political and economic uncertainty.

So it looks like we may well have a Santa Rally this year after all. The term is given to the phenomenon of stock markets regularly returning strong gains during the run up to the festive season.

Important
This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.

Related News

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Know more