Go away in May, there's an election on the way

Justin Urquhart-Stewart finds an up-to-date resonance in the stock market's old adage about a seasonal lull

Stock market investors are traditionally advised "Sell in May, Go Away. Buy Again on St Leger Day". Normally I ignore all such rhymes as being as about useful as seaweed for weather forecasting. But often, and probably like the seaweed, there is a kernel of truth behind the theory.

The basis of this idea dates back to those seemingly halcyon days before Big Bang when private clients were a well-heeled select few, and the stockbroking profession was one of the best clubs in the country.

In the days when markets were run by a few gentlemen with few interruptions from "Johnny Foreigner", stock exchange trading could be conducted between 10am and 3pm, including time for a proper lunch. So life was paced carefully. After all, investment decisions must not be rushed.

Thus, come May, investments would be got up-to-date in time for the forthcoming London season - surely the most exhausting time of the year, when the City establishment decamped to Ascot, Wimbledon and Henley, where they probably met their clients anyway.

Not surprisingly, therefore, with the main market-movers away, the result was often a robust amount of inactivity, with share prices drifting lazily downwards. But what about the institutions that are so dominant these days - surely the large pension funds would have snapped up such bargains? I fear not, as they were probably in the next box at Ascot. Remember, too, that in those sepia-coloured days the fund managers were not as dominant as they are today.

But does this still apply? I suspect that it would be difficult now to find anyone willing to take the chance of leaving the investment market from May until September. If you are responsible for other people's investments it would be unacceptable to risk missing out on potential opportunities. Any one of us attempting a rakish few months on the London season would not have a position to return to after the St Leger.

More importantly, as a market we are not an isolated island, but rather are part of an international and integrated trading system. Influences will come from currencies, overseas investors and of course external political events. Thus we no longer possess the ability to put the market into a semi-comatose state. With vibrant institutions working around the clock and a greater number of more demanding shareholders, the whole structure of the market has changed.

But rather strangely, this year there may just be an argument to consider leaving the market for the moment. With all the financial data around and the external factors influencing the index, there is one overriding element dominating the market - the prospect of a general election.

If the retail recovery continues, then there may be pressure to increase interest rates at some stage, although the Chancellor will probably do all in his power to put off the day until after any poll. The result is that the market cannot see clearly which way to go. This does not mean, however, that it is going to be dull. Take-over and merger fever will no doubt continue, while we also have the two privatisations, Railtrack and British Energy, along with other new issues, to consider.

Even if the stock market pauses for breath over the forthcoming months, that does not mean there will be no opportunities for making a profit. A hot summer is no excuse to ignore investments. I am happy to let others go to the horses and put their money on the 2.30, but I would rather spot some investment favourites first, and then go on holiday.

The author is marketing manager at Barclays Stockbrokers Ltd.

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