Skip to main content

Aaron Hankin

Theresa May’s bold move to call a snap election on April 18 to strengthen conservatives’ position in Parliament failed Thursday when the Tories fell well short of winning a majority in the U.K. House of Commons creating what is known as a “hung parliament.” With just one seat of the 650 yet to be decided, the center-right party had 318 seats, down from 331 in 2015 and short of the 326 required to form a majority.

The result has left the U.K. with a hung parliament, where no party has a clear majority. So what does that mean for investors?

Increased Volatility and Uncertainty

Investors have been craving volatility, which has plunged to record lows in recent weeks. Thursday’s result saw volatility in both currency and equity markets return. While it remains at multi-year lows, the uncertainty going forward – most notably around the future of Brexit – will keep markets on edge.

The strong showing from Jeremy Corbyn and the Labor party that won 261 seats has put the hard Brexit path in doubt. Theresa May has said she would go ahead with the negotiations governing with a minority. However, with just 318 seats the possibility of talks being delayed have grown, which will throw further uncertainty across the U.K. and Europe. “This Government will guide the country through the crucial Brexit talks that begin in just 10 days and deliver on the will of the British people by taking the United Kingdom out of the European Union,” May said outside 10 Downing Street today.

Lower Currency = Cheaper Stocks

It’s a little counterintuitive, but the uncertainty after the vote and increasing volatility have seen U.K. stocks rally. In short, the falling British pound has made stocks cheaper for offshore investors who have to buy British pounds to invest in U.K. markets.

This was evident after the initial Brexit vote when the pound collapsed, falling over 10 percent in a week. However, as the pound fell, U.K. equities rallied to record highs as overseas investors flocked to take advantage of the cheap currency.

Diversify

Diversity is a part of every good portfolio. But now diversity is more important than ever as all asset classes react to the hung parliament in different ways. The British pound tumbled to a six-week low Friday; the FTSE 100, a more international index, rose 1.1 percent, while the FTSE 250 fell and U.K. bonds rallied as investors headed for safe haven protection. “What does this mean for investors? The market reaction to this unwelcome outcome is likely to hit UK shares, bonds and the pound,” Tom Stevenson of Fidelity told the Independent.

“Markets will likely remain on the back foot while the difficult job of putting together a workable government is undertaken. This is when a well-diversified portfolio comes into play. The case for a well-balanced portfolio, geographically and by asset class, has never been stronger.”

The Bottom Line

The disappointing showing from the Tories on Thursday has investors questioning their portfolios. The significant turnout of young voters has dented Theresa May and her plans to negotiate a hard Brexit for the U.K. Without a clear majority the Tories are going to need support, which will likely come from Northern Ireland’s Democratic Unionist Party (DUP).

However, even with this support, the strong showing from Labor will have Corbyn and his supporters demanding some say in the Brexit talks. “Our position is very clear – we want a ‘jobs first’ Brexit, therefore the most important thing is the trade deal with Europe,” Corbyn said.

This article was written by Aaron Hankin of Investopedia and was legally licensed by AdvisorStream through the NewsCred publisher network.

Important Disclosure Information

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Dechtman Wealth Management, LLC [“DWM”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from DWM. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. DWM is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the DWM’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.dechtmanwealth.com.

Please Note: DWM does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to DWM’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

Please Remember: If you are a DWM client, please contact DWM, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.  Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently.

Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

Join our newsletter

"*" indicates required fields

Name*
This field is for validation purposes and should be left unchanged.