So much for that well-earned breather for UK voters. Instead, the second general election in 3 years will be taking place on 8 June, and the stakes couldn’t be higher. The election has come at a pivotal time in modern UK history. Following on from last year’s Brexit vote, the country is on the verge of going it alone without Europe for the first time in almost five decades. In this report, we’ll provide you a comprehensive analysis of how to trade it.

What’s at stake?

The ruling Conservative Party, led by Theresa May, are looking to cement their place in government with a greater parliamentary majority than their current 17, not to mention running under a fresh mandate rather than David Cameron’s previous administrative policies. Running against them, the opposition Labour Party will hope to stage a major upset as Jeremy Corbyn looks to prove his doubters wrong for a third time. Meanwhile the Tories’ former coalition partner, the Liberal Democrats, look to bounce back from a disappointing collapse in support in 2015. The Scottish National Party aim to give their calls for a second independence referendum some extra gravitas with another standout election, while UKIP look to avoid becoming consigned to the annals of history.

What are the polls saying?

The Prime Minister’s party came into the election with the largest ever lead in the polls at the outset of an election campaign. However, May’s Conservatives have since seen their lead slip as Labour makes significant gains. With only a week to go, some polls have even raised the possibility of a hung parliament, with the Conservative falling just 15 seats short of a majority. Labour would need a further 71 seats to form a majority, but after the political surprises of the past 12 months, could the 2017 UK General Election be the next big upset?

Is this a second Brexit/Scottish referendum?

Yes and No. While both the Conservatives and Labour are attempting to avoid using Brexit as a central campaign theme, the Liberal Democrats on the other hand are centring their campaign around the issue. Tim Farron, the LibDem leader, has stated that his party would investigate whether a second referendum on EU membership is possible, while his counterparts staunchly maintain that Britain will leave the EU.

Looking northwards, the Scottish National Party will hope to enjoy an equally as impressive performance as the 2015 general election, when the party won the most seats in its history. Should it manage to top 2015, the party will have a stronger mandate to call a second independence referendum, something that the SNP Leader Nicola Sturgeon has announced that she will be seeking should Britain receive an unfavourable Brexit deal with the EU.

For a comprehensive analysis of how a Conservative or Labour government would likely influence UK stocks, take a look over the page where we provide a look at which sectors would likely be most affected. Do you agree?

Which sectors benefit from Conservative government?

Conservative governments are typically private sector-friendly and supportive of tax cuts, both for individuals and corporations. However, crucially for this election, a Tory victory would likely mean a ‘Hard’ Brexit, although a landslide may provide some leeway for a transitional deal between the UK and EU as parliamentary votes become subject to less opposition. A harder Brexit would see the free movement of people between the UK and Europe limited, potentially affecting industries such as Housebuilding, Hospitality and Travel. Away from Brexit, several Tory MPs revealed that the party would propose a cap on energy bills should they win the election, resulting in UK 100 companies Centrica and SSE suffering subsequent share price declines.

What about under a Labour government?

Labour traditionally model themselves as a party for the regular worker rather than the corporation and, for this general election, the party is pursuing a more left-leaning agenda than ever before. The party will likely look at clamping down on tax avoidance, while potentially increasing corporation tax; this is a move that would initially negatively impact the UK 100 . Perhaps the most divisive issue that a Corbyn-led government would face is the renewal of the Trident missile system. Should the Labour leader get his wish and scrap Trident, defence contractor BAE Systems could suffer. On the plus side, a Labour government would look at investing heavily in the Steel industry, which would likely be beneficial for the Raw Materials sector.

How has the UK Index reacted?

The surprise announcement of the election on 18 April inspired Pound Sterling to 2017 highs against the Euro and the US Dollar. The UK Index subsequently sold off -2.5%, the second largest drop since the UK’s EU referendum.  Historical analysis shows that the UK’s blue-chip index was rallied 2.2% on the Friday after the 2015 general election vote as a Conservative party victory was viewed as the market-friendly outcome.

However, with upcoming Brexit negotiations being the over-riding issue of importance for markets, even a Conservative victory in the election could see a multitude of reactions. A landslide Tory win could see Sterling strengthen to the detriment of the UK Index , while a Tory win with a reduced parliamentary majority could see the pound sell-off. Alternatively, a surprise win for Labour could prompt a similar market reaction to that of the EU referendum as the UK adapts to a new government facing off against the EU.

How to protect your portfolio

In the absence of a crystal ball, no-one can predict the future and, while you may have a dependable, tried and tested portfolio, you can never be too careful when trading political events. Alternatively, you may see the election as a time to enter into some trades that you would not normally pursue, in order to enhance your current holdings.

In either situation, you may want to look at hedging your portfolio through a short position. By opening a short, while exposed to the same risks as a long position, you can profit from falling prices. For further details on how you can use shorts to hedge against falling prices, watch our educational video on the subject here.

Over the page, we list our top four general election stock picks, providing you with charts, technical indicators and price targets. With something for both the expected and unexpected, which of these stocks will you vote for?

BAE Systems (BA.)

Will shares rally to fresh highs of 680p or pull back towards 2017 lows of 580p?

• A Labour victory could see BAE Systems’ Trident missiles decommissioned
• Shares have bounced from 630p rising lows support since EU referendum to trade all-time highs
• Stochastics turned overbought; Relative Strength Index (RSI) touching overbought level
• Directional Indicators diverging bullishly

Broker Consensus: 67% Buy, 24% Hold, 9% Sell

Bullish: Vertical Research, Buy, Target 780p, +16% (30 May)

Average Target: 651p, -3.5% (1 Jun)

Bearish: Barclays, Underweight, Target 460p, -32% (20 Mar)

N.B. All pricing and consensus data was sourced from Bloomberg on 1 June. Please contact us for a full, up to date rundown.

Lloyds (LLOY)

Will shares rally to resistance at 74p or pull back towards 2017 lows of 62p?

• Lloyds has UK’s biggest mortgage book; would Conservative victory see investment in new homes?
• Shares have fallen back from 74p pre-referendum highs resistance having support at 62p
• Stochastics and RSI recovered from overbought
• Directional Indicators showing no bias; bearish cross or back to bullishness?

Broker Consensus: 59% Buy, 15% Hold, 26% Sell

Bullish: AlphaValue, Buy, Target 90.3p, +29% (18 May)

Average Target: 72.5p, +3.2% (1 Jun)

Bearish: Bernstein, Underperform, Target 40p, -43% (26 May)

N.B. All pricing and consensus data was sourced from Bloomberg on 1 June. Please contact us for a full, up to date rundown.

SSE (SSE)

Will shares rally back to resistance at 1550p or return towards May lows of 1380p?

• A Conservative victory may result in SSE being forced to cap energy bills for consumers
• Shares have fallen to support at 1500p testing 10-month falling highs resistance
• Stochastics and RSI recovered from overbought; momentum sharply off highs
• Directional Indicators converging bearishly

Broker Consensus: 47% Buy, 42% Hold, 11% Sell

Bullish: RBC Capital Markets, Outperform, Target 1750p, +16% (17 May)

Average Target: 1548p, +3.6% (1 Jun)

Bearish: Bernstein, Market Perform, Target 1400p, -7.2% (18 May)

N.B. All pricing and consensus data was sourced from Bloomberg on 1 June. Please contact us for a full, up to date rundown.

Unilever (ULVR)

Will shares rally to fresh highs of 4400p or pull back towards May lows of 3900p?

• A landslide Conservative victory could see a Hard Brexit. Would Unilever maintain its European network?
• Shares trading at all-time highs following breakout from tight 3900p-4100p range
• RSI and Stochastics overbought, however remain supported by rising lows
• Directional Indicators diverging bullishly

Broker Consensus: 48% Buy, 48% Hold, 4% Sell

Bullish: Berenberg, Buy, Target 4850p, +12% (24 Apr)

Average Target: 4238p, -1.9% (1 Jun)

Bearish: Goldman Sachs, Sell/Cautious, Target 3195p, -26% (20 Apr)

N.B. All pricing and consensus data was sourced from Bloomberg on I June. Please contact us for a full, up to date rundown.

Want to take advantage of the above opportunities right now?

Whether you see UK stocks going up or down for the remainder of the year, tradable opportunities will present themselves regularly. We’re here to help you weed them out and capitalise on them. Accendo Markets can help you increase your profit potential with the use of leveraged instruments such as CFDs, a flexible alternative to traditional shares that is currently exempt from UK stamp duty.

CFDs: Like shares, but more flexible

The example above shows how buying 1,450 shares in British Land @ £6.90 requires an outlay of around £10,000 plus commission (see left-hand box), while the same exposure via a CFD requires about £500 plus commission (see right-hand box). If a trader invests in British Land, one would assume they believe the share price is likely to move in their favour. After considering the ‘worst case scenario’ and assigning funds to cover it, the trader may conclude there’s little point in exposing the full £10,000 to the BLND shares - some of that capital could be put to good use elsewhere in the markets. (Source: IG, Prices indicative)

CFDs are leveraged instruments, but you don’t have to use the leverage

If you had, say, £10,000 to invest in the stock market, you could deposit that amount into a share dealing account and purchase shares in a company. You would pay commission to open the position, 0.5% in stamp duty and the full £10,000 will be tied up in your chosen shares with any profit or loss based on that exposure. The same £10,000 worth of exposure can be secured with a CFD for a fraction of the initial outlay thanks to leverage, with the risk and reward the same as if £10,000 worth of traditional shares were held. But should you not be interested in leverage, you can always treat CFDs like shares. Simply deposit £10,000 into a CFD trading account and take the equivalent CFD position which will tie up just £500 (note that overnight financing costs will still apply). The remaining £9,500 is not tied up, so you can use some of that to take advantage of another short-term opportunity elsewhere, or simply leave it on the account to support any losses. Best of all, using a CFD means you pay no stamp duty!

What’s your view?

Think shares will rise? Take a long position by buying CFDs (buy low, aiming to sell high). Think they’ll fall? Take a short position by selling CFDs (sell high, aiming to buy low). For a more detailed rundown of CFDs, their mechanics, associated costs and some trading scenarios download our ‘Comprehensive Guide to CFDs’ here.

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