The final result of the UK election with a significant loss of seats for the governing Conservative party, albeit still with the largest share of the vote but without an overall majority, leaves the eventual outcome for government in the balance. A DUP / Conservative party coalition looks most likely cf. a “progressive alliance”, although the slim majority will still likely necessitate cross party negotiations. Government leadership is in question and uncertainty reigns.
Regardless of the final outcome it has clearly not been the result that markets had expected and so we would expect a reaction in stocks driven both by weakness of sterling and possible policy change.
Lack of immediate visibility will clearly not help markets though sterling weakness will help those with overseas earnings and punish domestic exposed names which have underperformed into the election as polls narrowed.
Uncertainty about government policy on Brexit and the Budget…and all sorts of other things would be unhelpful and probably be seen as a drag on consumers and businesses. It would be difficult to assume a successor Conservative leader would follow the same Brexit strategy as Theresa May. General lack of visibility should increase expectations of Bank of England stimulus and hence keep bond yields low.
In this note we lay out initial thoughts per sector based on what we know at this point. Clearly there is room for significant volatility as we see what the implications are for implementation of policy.