As a general election looms, should you start Corbyn-proofing your money?

As the Johnson grip on premiership, party and international power slips ever further, should we start shoring up our investments for what could come next?

Corbyn delivers a speech during a Scottish TUC rally in Kirkcaldy last Saturday (PA)

Whatever happens in the mad, mad world of politics over the next six weeks or so, we can be (reasonably) sure of one thing. A general election is looming. It may not be before 31 October, but with every EU deal failure the prospects of an extension and a snap poll rise further.

If we are called upon as a nation to huddle in those rickety booths brandishing a pencil soon, (and it could come before the end of the year) the myriad possible outcomes include a future with Jeremy Corbyn at the helm.

Many in the City fear Corbyn’s anti-business rhetoric could hit the economy – and therefore investors’ pockets. The publishing of the Labour manifesto alone will probably “spook” the market even though most of its contents won’t be a surprise. So how can you prepare? And is it worth bothering?

Areas to avoid

“Corbyn-proofing is inextricably tied up with Brexit,” says Adrian Hull, head of fixed income at Kames Capital.

“Whilst no-deal Brexit seems less likely [now] it would be a brave person who sees Corbyn seeking a revocation of Article 50. Corbyn’s instincts are anti-EU and anti-business elites; that’s a tough environment for UK asset performance.”

Corbyn’s higher tax takes and dilution of share register to give away to employees isn’t the stuff of higher share prices. And his commitment to nationalisation could seriously threaten those invested in utilities; defence; rail and bus services; financials; and property.

The jury is out on gilts, however. Understandably, some expect higher government spending to prompt yields to climb and prices to fall, but Hull says they aren’t a “compelling sell” in a Corbyn-led UK.

“Gilts look cheap against other major European bond markets and despite the Brexit doom and gloom the bank has not emphatically guided to the next rate move being a cut,” he says.

“Moreover, increased fiscal spend may be done QE style in conjunction with the bank and may not pull the rug on valuations. Mainstream concerns around the flight of capital from the UK and a subsequent weakness in the economy could also actually support gilts.”

Areas to invest

What about the positives though? There must be some…

Well, an almost inevitable drop in sterling will have the usual impact, positively affecting some sectors like mining and oil.

And those big companies with huge overseas earnings could prove tempting, such as GlaxoSmithKline, AstraZeneca and Experian.

“It would be quite hard for investors to Corbyn-proof their portfolio completely,” says Ian Forrest, an investment research analyst for The Share Centre. “But I would suggest focusing on larger, defensive groups with significant overseas earnings and high levels of cash generation such as Compass, Unilever and Diageo, as well as the mining and oil sectors. Funds focused on a mixture of overseas investments would also be a preference.”

But will the economic landscape really shift that rapidly? Yes, the Corbyn/McDonnell team are extremely left wing in their policies, but what a politician says in opposition and what he or she delivers on once they are in power are often two very different things.

“Life will go on and UK businesses will adapt so investors shouldn’t give up on the UK market,” adds Forrest.

“By all means, an increase in global exposure should be considered but opportunities under a Labour government will arise. For example, Labour could spend more, meaning infrastructure companies and affordable housebuilders will likely benefit in the medium to longer term.”

“I would expect the market to be volatile until it can see what policies are actually likely to be implemented and what impact they have on the economy. Once that is known there might be a recovery as opportunities become clearer,” he says.

The good news for investors is that at the moment all of this appears unlikely as the polls indicate a Conservative-led government of some sort. “However, the possibility of a Labour government led by Jeremy Corbyn remains, so personal investors need to start considering what impact such a government might have on their finances,” Forrest adds.

“Investors will be watching the upcoming Labour conference closely and events are moving fast. If Boris Johnson does not deliver on his promise for Brexit to occur by 31 October support for the Conservatives could fall significantly.”