Awaiting the Outcome

 In Market Wrap

As markets await the outcome of the general elections, investors are unclear about how to respond to the results. The reasons are hardly difficult to understand.

2019 has seen an increasingly polarised market. The indices are driven by a handful of stocks which are mostly institutionally owned or index investing driven. The broader market has done little to cheer investors. As indices are within touching distance of all-time highs, the broader market is seeing more companies trade closer to their 52-week lows. The underlying trend in the majority of stocks is distinctly weak.

A decisive election result should lead to some cheer. But, markets are unsure how much it will help individual portfolios. A sentiment driven bump up in the index may not be enough to cheer the broader market. This needs much wider participation and aggressive flows. It remains to be seen if the political sentiment is adequate enough to enable such broad-based flows.

What we can expect in a best-case scenario is further concentrated and polarised buying of the same handful of index favourite stocks. Sentiment could also play spoiler if we get a hung verdict. This could potentially hurt portfolios across the board.

The exit polls on Sunday will be a crucial pointer. But, the game is not over until it is over. So, the week promises nervousness and excitement, with no clear guarantee of returns. Investors are better off taking a detached and calmer approach to market volatility.

Markets will quickly settle down to discount individual company performance and will be eager to put politics behind.

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