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Election winners

FEATURE: With the general election hitting fever pitch, Rory Jones and our sector specialists examine the potential corporate winners and losers from the political bun-fight
April 8, 2010

Picture the scene. Dawn is breaking on 7 May and Gordon Brown is waltzing back into Number 10, grinning that unique smile of his. It's reminiscent of that famous upset in 1992. But this time, it's the Conservatives that have to look on, asking what went wrong. And investors will have plenty of questions. What does this mean for the stock market? Which companies are likely to benefit?

But there's another outcome - a Tory win. Until the autumn that was perceived as likely but, given that Tory opinion poll support is now flat-lining at about 35-36 per cent, it now seems no more likely than a Labour victory. Still, if they do pull it off then envisage David Cameron cycling into Downing Street playing Lady Ga Ga on his iPod. He waves to George Osborne, unpacking at Number 11, while Lord Ashcroft has flown in from Belize especially. We're still asking the same questions, though – how do investors benefit?

Clearly, the pair's policies are going to benefit some investors more than others and in different ways. Either way, when it comes to past elections, history isn't really on the side of investors. In the three weeks leading up to past polling days, the London stock market has typically served up losses or tiny gains of under half a per cent, according to stock market historian David Schwartz. He says that, since 1964, only two out of 12 general elections have delivered significant returns in the run-up to polling day and, if it's a close-run affair – like this election could be – then the average decline has been a nasty 15 per cent.

And it's not just prior to the vote that things get gloomy. Indeed, since 1945 the average election year increase in the London stock market has been just 2.2 per cent – compared with a 9.8 per cent annual average return for the period as a whole. So identifying those shares that can add value to a portfolio at this time matters, especially with the added spectre of a hung parliament – which we discuss in detail later on.