12.13.2019
By Shanny Basar

Reaction: Conservatives Win Majority In UK Election

In yesterday’s general election the Conservatives, led by Prime Minister Boris Johnson, won an unexpectedly large majority of 80 seats. The majority will help the UK government deliver on its pledge on leaving the European Union by January 31 2020.

Paul Clarke, head of FX Venues at Refinitiv, said in an email that the move in sterling after 10pm GMT yesterday, after the exit poll predicted the Conservative majority, was the biggest in some time. The rate moved 2.54% from 1.3181 at 22:00 GMT to a high of 1.3516 at 22:45.

GBPUSD traded prices this week Source: Refinitiv

Clarke added: “We have not seen similar moves since 18 April 2017, the date of the last general election, when sterling gained from an open of 1.2562 to a close of 1.2842 after a high of 1.2908. In terms of volume, we saw a peak of trading activity in the first 30 minutes after the exit poll, after which trading settled to a strong but more typical level.”

Tim Graf, head of macro strategy for EMEA at State Street Global Markets, said in an email that there is not a lot of upside left for sterling. He added: “Sterling is now rich versus the other currencies for the first time since the referendum.”

Nick Burchett, co-fund manager at Cavendish Asset Management, said in an email that institutional investors should guard against being overly bullish about sterling.

“Investors should not forget that the political declaration only states an objective for the UK and EU to reach a zero tariff and zero quota trade agreement,” he added. “Nothing is set in stone and with trade talks likely to run beyond 2020, currency markets may want to err on the side of caution.”

Olivier Konzeoue, FX sales trader at Saxo Markets, said in an email: “We believe we could see a second leg higher for sterling and UK assets, but the bulk of the current underweight in UK asset allocation is expected to be addressed a few weeks from now. In short, the result is positive for markets, but patience will be key from now on.”

Colin Morton, portfolio manager, Franklin UK Equity Team, Franklin Local Asset Management, said there could potentially be substantial flows coming into UK equities from both international and domestic investors.

“Even though a rallying pound is likely to put some pressure on overseas earners, at the same time, we think a proportion of the potential assets coming back into the UK market could find its way into FTSE 100 Index companies because of the liquidity that index has historically offered,” he added.

Miles Celic, chief executive of trade body TheCityUK, welcomed the clear result:

Innovate Finance, the industry body representing UK fintech, said the new government should a scale-up visa to fast-track essential hires from overseas:

Richard Colwell, head of UK equities at Columbia Threadneedle Investments, said in a statement that UK valuations are at 30-year lows compared with international equities as a whole.

“So the greater clarity we now have over Brexit and UK politics should not only spur an immediate stock market rally, but also encourage a longer lasting reappraisal of UK-listed companies,” he added. “Global asset allocators who had fallen out of love with the UK will likely shift money back to the region.”

Philip Dicken, head of European equities at Columbia Threadneedle, agreed that UK stocks and sterling will take some heart from the clarity of the result.

He said in a statement: “But until we have more evidence of what the Brexit terms will be, there may be continuing weak capital investment in the UK, which will be a brake for domestic economic activity.”

Law firm Hogan Lovells said in a statement that that it expects the Prime Minister’s withdrawal deal to be passed by 31 January nest year but the deal leaves many more questions than answers.

“The timetable is less certain than it might seem,” added Hogan Lovells. “The net result for business is that political risk will remain heightened in 2020. There has never been a greater need for businesses to engage in informing the policy choices that will shape the UK’s economic and political future, and their own business environment.”

Ben Higson, partner at Hogan Lovells, said in an email: “One of the biggest differences between this Government and its immediate predecessor is its desire to uncouple UK regulation from that in the EU. Over time we are therefore likely to see divergence with the aim of making the UK a more business and innovation friendly jurisdiction than its larger European neighbour particularly in the industrial areas which the Government sees as the future.”

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