The results are in and it is clear that the Labour Party will replace the Conservatives in the UK government. Yesterday (July 4) there was a big swing in the public vote and the result was a landslide victory. Given that investors don’t like uncertainty and volatility, could this trigger a stock market crash in the next few months?
Unlikely in the short term
In my view, the risk of a crash is low. It is true that investors do not like uncertainty about the future. But as far as the election result is concerned, it was pretty much what people expected. The polls leading up to the election pointed to a change of government, so this should come as no surprise to anyone.
In addition, the risk of a crash is low because the Labour Party positions itself as business-friendly. An imminent increase in corporate taxes is not to be expected, as the party is even pushing for greater cooperation between companies and politicians.
Of course, we will have to wait and see how this develops in the future, but I don’t think this will trigger a sharp decline in response to the results.
In my view, the risk is that the large majority in Parliament will be exploited to potentially push through measures that investors believe are harmful to the economy. In this case, share prices could fall.
Previous movements
The initial reaction of British assets was modestly positive. The British pound has gained slightly against the other currencies, while the FTSE100 And FTSE250 are both higher this morning than at yesterday’s close.
As for the stocks that are particularly sensitive, I am keeping an eye on FTSE 250 companies that are heavily focused on the UK, as these will obviously be most affected by the change of government in the short term.
One I’m watching
For example, I observe Alpha Group International (LSE:ALPH). The company is a foreign exchange and payments services provider whose shares have risen 6% in the last year. It has offices abroad but conducts the majority of its business from London.
If the UK economy grows and is supported by the new government, I think Alpha should do well. The UK businesses it provides payment services to should transact more frequently as they see increased demand. Alpha will benefit from higher commissions and payment revenue.
The company is growing rapidly, with pre-tax profits up over 140% year-on-year to £115 million in 2023. Of course, it’s easier to post big profits when the company isn’t that big, but I’m still impressed.
The risk is that a fall in the value of the pound could lead to a loss of sales as many UK importers would find the exchange rate becoming more expensive, so they may even have to buy locally and not need Alpha’s services.
But there are so many ifs here that it is difficult to make a prediction at this point. Ultimately, I do not see an imminent stock market crash due to the results of the general election. However, time will tell based on the policies implemented.
The post “Could the general election result trigger a stock market crash?” first appeared on The Motley Fool UK.
Further reading
Jon Smith does not own any of the stocks mentioned. The Motley Fool UK has recommended Alpha Group International. The views expressed on companies mentioned in this article are those of the author and may therefore differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.
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