Investment Insider: History tells us that the markets aren’t moved by changes in government

The stock market performed well during the Coalition years, but market returns in the early stages of the Labour government were not too bad either

Nothing to shout about: politics is not the priority for traders (Getty)

When Tony Blair and Gordon Brown ran the country between 1 May 1997 and 6 May 2010, the FTSE 100 delivered a total annual return of around 4.5 per cent. In other words, every £1,000 invested at the start of the Labour government in 1997 would have turned into £1,772 after 13 years.

During the Conservative/Lib Dem years, the FTSE has returned almost 10 per cent. Put another way, £1,000 invested in the UK’s top 100 companies while David Cameron and Nick Clegg have been in charge would be worth £1,610 after five years.

The stock market has performed well during the Coalition years, but before we jump to any political conclusions, the market returns in the early stages of the Labour government were not too bad. While during Mr Blair’s tenure as prime minister, the FTSE 100’s return was 7 per cent, his first five years would make for a fairer comparison with the present government, and here the annual returns were 5.5 per cent. That might not look very favourable but we have to bear in mind the dot-com crash early in the last decade.

And then, much later in Labour’s rule, we had the great financial crisis.

The two events sent shockwaves through global equity markets, which required hefty support from central banks to repair the damage.

In fact, the FTSE 100 appears resilient enough to perform well under any government. That is not too surprising as many of the UK’s top 100 companies are not really that dependent on Britain at all. They generate around two thirds of their revenues and profits abroad. British American Tobacco, for instance, barely sells any cigarettes in the UK. Similarly, the drinks giant Diageo is more concerned with events in North America and Asia than it is about Britain.

However, some businesses are very UK centric, like the energy companies that could find themselves under close scrutiny if the next government intervenes on prices. The utility companies claim that profits are essential if the UK is to enjoy uninterrupted power supplies. Customers, on the other hand, claim shareholders should stump up the capital, given that ultimately they will be the beneficiaries.

Housebuilders are reliant on the UK too, though it is unclear whether they would be positively or negatively affected by a change of government. What is not disputed by many is that the UK needs more houses, with the supply-demand imbalance pushing up prices to unaffordable levels. That said, the market will need the correct mix of social and private housing to avoid damaging the property sector, which is likely to be hit by higher interest rates anyway.

Cases both for and against a change of government can be made in almost every industrial sector exposed to the UK economy. However, long-term investors should look at their portfolios before they ponder what might happen after the election. The key to successful investing is diversification, and that applies not only to sectors but countries too. The fate of your money cannot hinge on where you put your cross on a ballot paper.