Never mind the election, watch US interest rates

UK politics have an enormous impact on share prices: don’t they? The chastening reality – for politicians – is not as much as one might think.

it might come as a relief to small investors that Ed miliband, Nicola Sturgeon, Nigel Farage and David Cameron have limited influence over the FTSE 100.

This may not be the impression given when, in the grip of election fever, some commentators seem determined to interpret every piece of business or economic news through a party political prism. in the past few days some claim to have detected ‘panic’ in even the most glacially calm of markets.

The instinctive assumption is that Conservative governments will be good for markets and socialist ideology is bad (whether or not particular Labour governments practised socialism is another debate).

Looking at the performance of the markets dating back to 1970, that broad idea seems to holds true.

According to an analysis today by expert Laith Khalaf, the stock market has performed twice as well under Conservative governments dating back to 1970 than it has under Labour.

The most market-friendly government of the past 45 years was margaret Thatcher’s, which saw the privatisation of utilities and the floating on the stock market of former building societies.

Big Bang swept away archaic City of London practices, capital was allowed to move freely and large overseas banks moved in.

Alongside these changes were lesser-known reforms, including the introduction of competition into the mortgage market and the first wave of pension freedoms allowing workers to opt out of employers’ schemes.

The stock market boomed under Thatcher and John major, but can they take all the credit?

The Thatcher era coincided with a similarly business-friendly administration under Ronald Reagan in the US and the end of the Cold War, bringing former communist countries into world trade and consumer markets for the first time, both of which had a far bigger impact than her reforms here.

With hindsight, some of those reforms also led to unintended long- term consequences.

The privatised utilities have largely fallen into foreign hands; the demutualised building societies disap- peared in the financial crisis; Big Bang led to the erosion of traditional ethics in the Square mile and arguably contributed to the meltdown. it is safe to say this is not what Thatcher intended but the upshot is that even her legacy is mixed.

Far more powerful than the politicians right now are the central bankers. The single biggest influence on share prices is the vast global experiment in money-printing, or QE, which is driving up the price of assets, including shares.

movements in the dollar also exert an enormous sway over the UK stock market and, again, British politicians do not have much traction over the mighty greenback.

The FTSE 100 index is not, as often billed, a barometer of British business but a basket of international companies, 20pc of which declare their profits and dividends in dollars. The biggest factor affecting shares in the next few months is likely to be US interest rates, which are expected to rise in the summer though that forecast may be pushed back since the latest jobs figures were worse than anticipated.

The election result could put pressure on sterling, particularly if it ushers in a miliband government dependent on the SNP.

But to suggest the pound’s current weakness against the dollar is due to domestic political worries is to overstate this country’s importance versus the world’s largest economy on global currency markets.

TURMOIL in the eurozone, the rise of China as an economic force and global threats from ISIS to Ebola may also have an effect on shares.

This is not to say the outcome of the election does not matter to business.

Ed miliband’s posturing has already hit share prices, most notably in the energy sector where he has threatened to impose a cap on consumer bills. But even then the dramatic fall in the oil price has taken a greater toll on the profitability of oil and gas companies.

A miliband government could lead to industrial strife and a decline in inward investment, while large firms fear a Brexit under the Tories. Smaller listed companies and entrepreneurial firms are far more vulnerable to British politics than their big multi-national brethren.

investors would be wise to keep a sense of perspective.