Investing.com - Six weeks ago, initial polls for the UK general elections predicted a landslide victory for Theresa May and the Conservatives. However, their lead has been narrowing recently, from an 18 points lead to just 7 points.
At this point, it is reasonable to ask – what would happen to the markets if Jeremy Corbyn's Labour was to come off on top?
Victory by the Labour does not mean Brexit will be reversed. Jeremy Corbyn ruled out a second Brexit referendum, making it very unlikely that the UK will try to reverse the process. They will try to secure a deal where the UK retains tariff free access to the EU, while restricting the movement on its territory. The EU, however, seems unlikely to agree to these terms.
As for the Sterling, the GBP Index jumped 1.6% on April 18 on the elections announcement and polls predicting a conservative victory. However, the Index declined along with May's lead in the polls, suggesting that a Labour victory is seen as bearish for the Pound.
The Labour's plan to re-nationalize railways as well as water and energy industries is putting pressure on equities. Major UK utility companies such as the National Grid (LON:NG), Centrica (LON:CNA), SSE (LON:SSE), and Severn Trent (LON:SVT) have all shown weakness in recent weeks.
The Labour also plans to intervene in the banking sector, and would change banking laws to stop banks from closing local branches. Investors fear a stronger regulatory environment will hurt profits, and bank stocks have reacted accordingly, as RBS (LON:RBS) and Lloyds (LON:LLOY) each lost 5% in the past two weeks.
Tomorrow's election could have strong effect on markets. The winning party's approach to business will determine where markets go long after the election is over.