UK equity markets fear the general election blues

Investors are being warned that UK asset prices are vulnerable to a market correction in the run-up to the general election on Thursday.

The FTSE 100 index of leading shares hit a record in April but all 30 senior UK financial executives polled by State Street Global Advisors, the fund house, said they feared disappointing corporate earnings could cause an equity market downturn.

Robin Geffen, founder and chief executive of Neptune, the £4.8bn investment manager, has warned repeatedly about the risks facing UK investors.

Neptune has avoided UK equities in the run-up to the election and some other investors have followed its lead.

"One simply cannot rule out the possibility that the outcome [of the election] will result in a shift to deeply market-unfriendly policies, and, potentially, a period of political instability to boot," said Mr Geffen.

UK-domiciled funds registered net outflows of just under £5.5bn in the first three months of 2015, according to the Investment Association, the trade body for UK asset managers.

Retail investors pulled just under £1bn from UK equity funds in March, a monthly record, taking net withdrawals to just over £2bn in the first quarter.

Niall O'Leary, head of portfolio institutions at State Street, said there was no doubt that the outcome of the election was "a concern" but added this was "not new news".

Credit Suisse, the Swiss bank, has forecast that the FTSE 100 will end 2015 at 7,200 if there is a minority Labour government and at 7,400 under a minority Conservative administration.

Analysts at Capital Economics have also warned that UK asset prices may jump "sharply" after the election.

"Gilt yields and sterling could move sharply as there are major differences regarding the size of the fiscal squeeze that a Labour or Conservative-led government would implement, and hence the speed at which monetary policy would be tightened in the next parliament," the consultancy said.

While 100 per cent of UK respondents to the State Street survey said they fear disappointing corporate earnings may cause an imminent market downturn in the UK, only 12.5 per cent of French respondents were worried about this eventuality in France.

Equally only 27 per cent of German respondents, 16 per cent of Swiss respondents and 14 per cent of Italian respondents were concerned about a market correction in their own markets.

Dominic Wallington, chief investment officer and senior portfolio manager at RBC Global Asset Management, said: "In a nutshell, all the parties still see the corporate sector as the best way to recovery and while they might tinker, they are unlikely to try to fundamentally change the way the sector is run."

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