Brian Tora column

Back from Cheltenham, the City is now placing bets for after the election

The Square Mile must be deserted during the Cheltenham Festival. I cannot be sure. I was at Cheltenham too. But, judging by the number of brokers, fund managers and investment bankers thronging the terraces of the greatest National Hunt course in the land, Threadneedle Street and Throgmorton Avenue must have been empty.

This City preoccupation with racing and, by association, gambling is a little worrying. Given the recent problems at NatWest Markets, I would have thought any self-respecting trader would not have been seen dead within a mile of a bookie. Still, all that corporate hospitality must make it hard to stay away.

Failing to make money on the potential dog food at Cheltenham led me to reflect on whether there is still a turn to be made on the outcome of the general election.

Derivatives broker GNI has produced an interesting tome termed The GNI Guide to the UK General Election. It contains much useful information, quite a lot of which is new to me. It seems that 32 days is the average period between announcing the date of a general election and the actual polling day. This suggests that we may not hear when the election is to be called until Easter.

More importantly for investors, they have examined polls of fund managers - and have conducted their own surveys - to try to discover what the movers and shakers of the City believe will happen after the election.

Not surprisingly, more investment professionals think the market will go down than up if the Labour Party is triumphant. The percentage that are pessimistic for stocks and shares rises dramatically if the majority is large. A surprise Conservative win would be taken as a rally call for the market - or so respondents almost universally believe. Investment managers are clearly taking their lead from 1992 when the Tory victory led to a 136-point jump in the Footsie.

Less consistent is the belief that sterling would fall under Tony Blair. Given that many consider an interest rate rise more likely under Labour than the Conservatives, this seems unlikely. Also, so far as both sterling and the market are concerned, if people are nervous, why are we not seeing selling pressure now?

It is not too difficult to answer that last question - at least as far as share prices are concerned. We know from recent surveys and from the problems faced by some fund managers such as PDFM that institutional liquidity is reasonably high. With positive cashflows continuing, there is plenty of money overhanging the market. This situation will be exaggerated further by the windfall issues of shares in building societies and insurance companies as they give up their mutual status. There are plenty of potential buyers out there.

So where does the money go? Construction has traditionally been a fruitful sector to back under a Labour administration. Spending money on infrastructure projects is a quick way of creating employment and kick-starting the economy - as if it really needs it.

Then, of course, we can expect some redistribution of wealth, so the less well off may have more money to spend. This could be good news for retailers like Kingfisher, though perhaps the knock-on effect will not extend as far as Harrods. Also, some other leisure sectors may benefit, such as breweries, particularly if they have holiday interests as well, as Scottish & Newcastle do with Centre Parcs.

There will be sectors to avoid, of course. Utilities stand out, given the declared intent to levy both a windfall tax and to tighten regulation. But this has already been well signalled and may have been factored in the price. Railway operators could fall into this situation, although there are doubtless efficiency gains still to be made following privatisation.

Then again, given the increasing difficulty that many of us are finding in spotting the difference between Labour and Tory policies, perhaps we can just continue as we are. But that wouldn't be good for business in the City, would it?

Brian Tora is chairman of the investment strategy committee at Greig Middleton, stockbrokers (0171-392 4000)