4 possible after-effects of U.K. general election

The June 8 U.K general election is fast approaching. So Tom Elliott, deVere Group’s international investment strategist, is placing his bets.

Elliot calls for the following four after-effects, given the gap between the two major parties in the U.K. has continued to narrow in recent days. He cites sources like the latest poll from YouGov that has the Conservative lead at just four points over Labour.

• The pound could come under intense pressure;
• UK-focused stocks could weaken;
• Gilt (U.K. government bond) prices will rise; and
• Capital markets will experience significant volatility.

“There’s a 55% chance the Conservatives will have a majority of ‎below 60,” Elliot forecasts. “Sterling would wobble and fall sharply if that majority is below 40, and [Prime Minister] Theresa May is again beholden to the hard Brexit lobby of Tory MPs.”

He adds, “Anything below 25 and May’s job would be on the line, with a leadership contest beckoning. Sterling would then fall further as the risk of a hard Brexit PM, such as David Davis, is priced in. Capital markets would become very volatile.”

Read: Betting on an EU breakup? Soon, an ETF for that

Conversely, Elliot says, “A Conservative majority of [more than] 60 […] has a 25% chance of occurring. Such a majority would vindicate her decision to call an election and give her a large enough majority to effectively ignore the estimated 30 or so conservative MPs who want as hard a Brexit as possible. Sterling would rally as the prospect of May doing a soft Brexit deal rises, [and] short term gilts would fall in price (and yields rise) as the prospect for the economy improves.”

For those investing, he notes, “FTSE 100 foreign currency earning stocks would weaken as sterling rallies, but UK-focused stocks would rally as prospects for the economy improve. This would lead to outperformance by mid- and small-cap indices, compared to FTSE 100.”

Read: Is Europe next for election shock?

Elliott concludes: “I estimate there’s a 15% chance of no parliamentary majority,” and “I put a Labour majority at a 5% chance; not so different from the previous scenario as regards to impact on capital markets, though Britain’s relationship to the EU would be more distant, with fewer obligations and benefits.”

What do you think will happen, and will the election impact portfolios? Comment below or email us.

Also read: Why you shouldn’t ignore Europe

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