The UK general election has resulted in a hung parliament, with no single party achieving a sufficient majority. While this was initially unexpected, understanding the political landscape gives us a guide to navigate through uncertain markets.
The Political Landscape
The biggest surprises included a surge in support for the Labour party, an impressively increased younger-voter turn-out of over 70% and the SNP conceding seats to both the Conservatives and Labour.
The Conservative party’s prior majority of 17 seats have been lost and the impact that this will have on Brexit negotiations is sharply in focus. With the Conservatives seemingly performing badly in ‘Remain’ constituencies, it seems that Brexit was a major factor in this result.
There is enormous uncertainty, but at the time of writing the most likely outcome of this is a Conservative minority government, formed with the support of Northern Ireland’s Democratic Unionist Party (DUP) which would produce a slim majority of around 5 or 6 seats. It currently also looks likely that Theresa May will remain in her role, but we would not be confident of this longer-term. If no deal can be achieved, a further general election could be scheduled for later this year, potentially in October.
With the deadline for a Brexit deal being immovable this is a setback for the UK’s position, potentially delaying the start of talks (which were due to begin on the 19th June) and the ability of our ambassadors to commit to deals.
Impact on the Markets
While the level of uncertainty is heightened, this is a localised event and thus far we have not seen a significant effect outside of UK equity markets and the currency markets. The Pound has fallen on the news and the effect on markets has been similar to that experienced after the Brexit vote, although nowhere near as severe. Those companies whose revenues are largely based in non-sterling currencies, which dominate the FTSE 100, have risen but those that are more domestically-focused have fallen.
There may be complex and unexpected changes in the coming weeks, but we remain confident that our robust preparation will protect assets where necessary and capitalise on opportunities when they arise.