Prime Minister May’s election campaign has resulted in one of the most spectacular backfires in modern political history with Labour gaining more seats than many expected and the Conservatives losing their previous slim majority, leaving them seven seats short of an overall majority at a prospective 319 seats. The initial exit poll gave the first warning sign that the Conservative majority that May was seeking was likely to be non-existent and as the night progressed, the prospects of a hung parliament increased.
So what can we expect from here? The future of Brexit talks, which were scheduled for 10 days’ time, looks undeniably shaky, the leadership of the Conservative party could be tested again and another election could be pursued later this year. This injects huge uncertainty into markets and will lead to volatility. In our view, this is the worst possible outcome for the markets in the short term.
Sterling has already registered the effects of the first shock wave from the election result, falling over 2% from yesterday. This will buoy FTSE large caps with their foreign earnings but will be negatively translated into domestic earners as inflationary pressures will continue to build. Expecting the unexpected is now de facto and we continue to be positioned in non-sterling assets, which will benefit our portfolios in the short term.