The UK's general election campaign officially kicked off last week and it is no surprise that markets woke up to the ensuing political discourse: the UK equity market underperformed the major markets, losing 0.7 per cent. The decline came in spite of relatively sanguine economic reports, including a modest upward revision to fourth quarter GDP, consumer confidence reaching its highest level for almost 13 years and solid manufacturing data.
A Syriza election victory would obviously increase Greek credit risk – i.e. the higher probability of a country default – and raise concerns of a Greek exit from EMU. On balance, however, we believe that the market implications should be relatively contained.