A hung parliament has prompted a drop in sterling, boosting overseas earners on the FTSE 100 and weighing on the UK domestic-focused FTSE 250. However, the market movements aren’t quite as extreme as many people might have expected.
In early trading, the FTSE 100 is up 0.9% to 7,519.9 and the FTSE 250 is down 0.6% to 19,641.5.
‘The result of the general election has posed many more questions than it has answered,’ says Neil Birrell, chief investment officer at fund company Premier Asset Management.
‘There is considerable doubt surrounding the sustainability of whatever government is formed, the political future of the leaders of all the major parties, the outlook for the UK economy and the imminent negotiations with the EU over Brexit.
‘Perhaps the only thing it actually clears up is that there is much less chance of there being another referendum on Scottish independence for some time. All of this would normally would lead to the phrase “markets hate uncertainty” being rolled out, however, the initial reaction of gilts, equities was muted.’
NOT A REPEAT OF BREXIT MARKET CRASH
Investment bank Berenberg says the election outcome ‘is not a repeat of the Brexit vote on 23 June’, from a stock market perspective.
‘We do not expect a major impact on short-term UK demand growth. Household demand will probably not be affected much,’ says Berenberg’s senior UK economist Kallum Pickering.
‘However, amid the added uncertainty, business could tread more carefully than before when deciding on investment and hiring. The result is negative for UK asset markets, but not dramatically so.
‘It is modestly negative for the sterling exchange rate but we do not expect a large impact beyond and initial knee-jerk reaction. The political uncertainty coming from the result is partly compensated by the small chance that Brexit may not happen and by the hope that UK may opt for a less hard Brexit.’
DRILLING DOWN INTO SECTORS AND STOCKS
Unsurprisingly the winners this morning are those stocks and sectors which will see their earnings flattered by weaker sterling.
The likes of luxury goods firm Burberry (BRBY) up 2.3% to £17.57 and Diageo (DGE) up 1.9% to £23.28 as well as a swathe of miners and the big oil companies BP (BP.) and Royal Dutch Shell (RDSB).
Real estate and retailers are the big early losers with Next (NXT) leading the list of FTSE 100 losers, down nearly 4% to £41.91.
