Hung parliament creates investment opportunities among the alarm
Markets are in flux after the news of a hung parliament result from the UK general election. With the Tories likely to partner with the DUP, there remains a huge degree of uncertainty both politically and in investment terms.
The immediate impact saw the pound lose two cents against the US dollar and the euro on the foreign exchange rates. Shares are broadly higher, but on alert, as any change in the UK political situation, or global events such as Donald Trump’s woes or the Qatar situation, could affect many markets.
Coalition Lacks Stability
When eventually formed, any coalition will have a very thin majority. That means they will find it very hard to pass through any extreme or controversial legislation plans. That would appeal to investors and the market, as it creates a period of stability – until the next election, which could come a lot sooner than five years.
The next big upheaval will come when Brexit negotiations are due to start, which will make many investors very nervous around European-focused and banking stocks. Even a soft Brexit approach will have huge implications, but any deal is likely to soften the blow over a longer period of time, compared to Theresa May’s hard Brexit stance. At this point, taking a long-term and calm approach to investing would be wise compared to making short-term big bets that could backfire.
Election Dust To Settle Quickly
While there is likely to be more volatility in the immediate days and weeks following the election, think back to the May 2010 election for trends, any dust should settle relatively quickly. Most UK businesses and their investors will take a ‘business as usual’ approach but should have plenty of hedges and backup plans in place.
Further drama could come from rating downgrades, as these agencies consider the UK’s long-term economic future. But they will have less of an impact on day-to-day investments, while asset markets will see some negative impact. With a recent hung parliament in the bank, markets should be less skittish than in 2010, and with a less volatile political situation likely, there are plenty of opportunities across all classes and types of investment.