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What snap UK election means for investors
The political shocks which have dominated the last 12 months just keep on coming. We now have Theresa May announcing plans for a snap General Election on 8 June, triggering a rally in sterling and weakness in the FTSE 100 index.
Based on a 21 point lead in the polls, some market commentators believe the Conservatives could increase their current working majority of 17 seats after the vote. Some projections suggest the majority could increase to more than 100.
‘From a markets point of a view, a snap election is welcome news – at least in the longer term once the initial reaction has subsided,’ says fund manager Paul Mumford from Cavendish Asset Management.
‘Even without the proposed boundary changes, everything points to the Tories being elected with a substantially increased majority – which will give the Government a firm mandate and put it on steadier, more solid ground as it begins the difficult, complex work of negotiating Brexit.
‘This can only reduce uncertainty and the potential for hiccups over the next couple of years, so it’s a sensible move.’
The UK election further cements the importance of politics to the direction of stock markets across Europe near-term, given we also have looming elections in France and Germany.
The first round of the French presidential election is being held on 23 April with right-wing populist Marine Le Pen still in the running.
Although sterling was weak on speculation ahead of the UK general election announcement, it strengthened once news of an election was confirmed.
The stronger pound helped undermine the FTSE 100 where a large proportion of constituents earn money in foreign currencies.
As we’ve seen since the Brexit vote last summer, a weaker pound can benefit companies who sell their goods in foreign currencies but then translate them into sterling when reporting their accounts.
Therefore, strength in sterling makes these companies less attractive from a translational perspective.
Markets under conservative leadership
Analysis by AJ Bell investment director Russ Mould suggests the markets would welcome the expected procession for Theresa May as the FTSE All-Share index has performed better on average under Conservative Prime Ministers. (TS)