The FTSE 100 has opened up 79 points, or 1%, as UK stocks digest the news that the General Election has ended in a hung parliament. Despite the uncertainty brought on by no clear majority, the stock market has not fallen.
The FTSE’s slight rally can be put down in part to a fall in sterling as 70% of the earnings from the large-cap index are sourced overseas. Downward shifts in the value of the pound often result in a boon for UK companies, as seen last year following the Brexit vote.
Hargreaves Lansdown’s head of investment research, Mark Dampier said: “This is very different to the Brexit vote of last year. While the result is a surprise and may lead to another election later this year – market reaction has generally been subdued so far because the Tory government will remain in power but a hard Brexit now looks less likely.”
The Conservatives now have 315 seats, the Labour party led by Jeremy Corbyn is at 261 seats, up 32 seats, while the Scottish National Party is down 18 to 35 seats and the Liberal Democrat party is at 12, up 5. Northern Ireland's Democratic Unionist Party is at 10.
Calls for Theresa May to resign are growing. When May called the General Election in April, the polls showed the Tories to have a 20 point lead, or as many as 100 more parliamentary seats. This has steadily narrowed over the course of the campaign. May is due to give a press conference at 10am today.
"Clearly, the fact that the Conservatives will be able to get past the 326 line with the help of Northern Ireland's DUP is probably allowing markets, at least at this early stage, to keep a sense of perspective," says IG chief market analyst Chris Beauchamp.
"Had the result been closer, investors would have been more nervous, but it still looks unlikely that Jeremy Corbyn will get anywhere near No. 10.”
The pound declined strongly against the dollar and the euro as soon as the exit poll results were published at 10pm last night, and has been unable to take back any ground since.
Colin McLean, managing director, SVM Asset Management said investors in like property, media, retail and challenger banks stocks should expect falls of 2-3% today and FTSE 100 sectors with international earnings - pharma, oils, mining, exporters - should gain on the weaker pound.
What Does it Mean for Brexit?
Brexit negotiations are due to start in 10 days, but there is some doubt as to who will lead these on behalf of Britain.
“The key issue facing the market now is how this result will impact Brexit negotiations,” said Mike Pinggera, manager of the Sanlam Four Multi-Strategy Fund
“The obstacles to getting a deal which gets the approval of Parliament without having a majority to play with are very real and the risk of Brexit with no deal achieved has definitely gone up.”
