investment viewpoints

UK politics throws another electoral surprise

Salman Ahmed, Chief Investment Strategist, comments on the outcome of the 2017 UK General Election.

"UK politics has thrown another electoral surprise as the Conservative party has lost its majority, contrary to the predictions of most pre-election polls.

"The early election gamble from the Conservative Prime Minister Theresa May seems to have backfired - rather than delivering a stronger mandate for the Conservative party it has resulted in a major setback, both for May's standing and her party's position.

"We have been highlighting for some time that pre-election polls are unreliable and volatile and that markets remain overly benign in the run-up to elections. Our fears regarding downside risk to Sterling have also been realised, with the pound taking a knock on the prospect of a hung parliament.

"At this stage, it is unclear what the future make-up of UK government might look like and whether we will have another election. This also creates significant uncertainty around Brexit negotiations, including timelines. Given May's hard Brexit stance, it appears that the change in political support will be read as a desire for a more pragmatic approach to an exit from the EU. That said, the picture remains confusing with no clear support for any specific agenda.

"We think that Sterling will remain under pressure in the days ahead and are watching the 1.25 level carefully as we noted pre-elections. UK equities are likely to fare better, in our view, helped by currency depreciation. However, we believe that upside potential remains capped, especially relative to continental Europe where fundamentals seem to be improving fast alongside a very dovish ECB; continental Europe remains our core value call in the equities space.

"Broadly, we see this election result as having little impact on global risk sentiment and we remain positive on emerging market local currency debt and equities."

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