Despite the unexpected election result, the FTSE 100 opened higher this morning.
The index had climbed to 7,538 points by 8:10am, before settling around the 7,510 mark as the morning progressed.
PM Theresa May is to visit Buckingham Palace this afternoon to seek permission to form a government, presumably with the support of the Democratic Unionist Party.
Still, it is becoming clear that the biggest concern for investors is what shape the country will be in ahead of Brexit negotiations later this month.
“The future of Brexit talks, which were scheduled for 10 days’ time, looks undeniably shaky, the leadership of the Conservative party could be tested again and another election could be pursued later this year,” said Charles Hepworth, investment director at GAM.
“This injects huge uncertainty into markets and will lead to volatility. In our view, this is the worst possible outcome for the markets in the short term.”
Sterling has already registered the effects of the first shock wave from the election result, falling over 2% from yesterday.
Hepworth believes this will buoy FTSE large caps with their foreign earnings but will be negatively translated into domestic earners as inflationary pressures will continue to build.
“Expecting the unexpected is now de facto and we continue to be positioned in non-sterling assets, which will benefit our portfolios in the short term,” he said.
Gavin Haynes, managing director at Whitechurch Securities Wealth Managers, is another predicting a “softer stance” on Brexit with potentially more protracted negotiations.
“Brexit remains a divisive issue and a hung parliament makes it impossible to form a cohesive strategy to negotiate with EU members,” he said.
“Investment markets have seen the news as a positive, seeing it as leading to a diluted and more trade-friendly Brexit.
“It seems likely that we will move away from the hardline approach of ‘no deal is better than a bad deal’. Many commentators now believe that any Brexit process may be derrailed and any deal may take a lot longer than two years.”
