The upcoming election is set to be the most unpredictable and fragmented since the 1970s, according to UBS Wealth Management’s Bill O’Neill.
"We think there will be significant volatility in the second quarter of 2015 – it is almost inevitable," said the head of the UK investment office at the bank.
Go deeper with GlobalData
Speaking to reporters in London, O’Neill also drew parallels with last year’s Scottish referendum campaign.
He said: "Just as they did with Scotland, the markets are saying ‘fine, fine, fine’, but then as the date approaches they will start to panic a little bit."
Weeks before the referendum in September 2014, several wealth firms said clients had been moving money out of Scottish banks, and pension funds out of the stock market and into cash, diversifying over short-term scares.
According to a research note issued by UBS Wealth Management, the lack of clarity about the election outcome may indeed exert a downward pull on some UK assets.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataParticularly troubling would be a "double minority" outcome – when two parties still didn’t have enough seats to form a coalition, the Swiss bank said.
A combination of the Conservatives or Labour with the Liberal Democrats might still be short of the 326 needed for an overall majority, the research also found.
The markets will focus on the implications of the election result for the UK government’s commitment to austerity 2.0, and the possibility of a referendum on EU membership.
However, there is no immediate danger of a debt rating downgrade, according to the bank.
Stay positive
O’Neill also acknowledged that despite market fears, the UK economic context is "relatively very bright."
He said: "We believe that as we go into the election the misery index will be very low. We have a very robust consumer recovery, with the first rise in real average earnings in six years, easy credit conditions, low inflation and the stimulative effect of the collapse in the oil price."
UBS Wealth Management said the possibility of an EU exit is potentially a market concern, but investors will only start to assess the risks seriously "once the shape of the new government is known".
However, the threat of a referendum "could nonetheless harm the economy, gilts, sterling and specific sectors of the equity market", he said.
A change of government could, concluded the bank, lead to changes in industrial policy. This could specifically affect the utilities, banks, tobacco sectors as well as the housing market.
