How to Ed-proof your portfolio

It was 2 May 1997. Not only was most of the country celebrating the election of a bright young Kennedy-esque Prime Minister called Tony Blair, so too, perhaps more surprisingly, were the champagne-swilling Thatcherites of the City of London. As the government took office, the FTSE 100 index climbed up to 4,455, and it was to carry on rising over the next few months, reaching 5,193 by the year’s end. Indeed, for much of its first term, Britain’s last Labour government was accompanied by a raging bull market, as the dotcom bubble reached its peak.

Will history repeat itself? In May, we may well see another newly elected Labour prime minister, Ed Miliband. Unlike his predecessor Blair, Red Ed seems rather more committed to old-fashioned socialism.

Still, we can expect the market reaction to be very similar: an initial bull market, followed by a crash, the North profiting at the expense of the South, construction doing better but services worse, and the satellite companies of the state getting a fresh boost. If that happens, investors will have to navigate carefully to keep their portfolios intact.

The result of the election next May is too close to call. But the polls give Miliband the edge, and the electoral map favours Labour. There is a good chance that he will end up in No. 10 by the time next summer comes.

‘The markets don’t have a very kind view of Miliband, or his likely choice as Chancellor, Ed Balls,’ said Marc Ostwald, market strategist at ADM Market Services. ‘The most vulnerable market is sterling, and if sterling is vulnerable, the equity markets are too. As the election gets closer, there is going to be a lot more political risk priced into the market.