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Snap U.K. Election Results in Hung Parliament

Prime Minister Theresa May’s gamble to call a snap election and solidify her majority government, while gaining a more established mandate for Brexit negotiations, backfired yesterday as U.K. voters elected a weak Conservative minority government.

Although she is facing pressure to resign from Labour party leader Jeremy Corbyn as well as from some of her own Conservative party colleagues, May has indicated a desire to stay on as prime minister for now.

However, if the Conservatives fail to get the support of the House of Commons, the likelihood of another election is a real possibility. A Conservative leadership election may also be likely at some point.

Global economic reaction is muted

Response to the election results appear to be regionally contained, with Britain’s pound sterling down just over a one and a half percent—its lowest level in seven months versus the euro. Other currencies have shown little reaction to the election results.

We don’t expect broader ramifications for the global markets, and as of this morning, European equity markets were up significantly overall.

Although a weaker mandate may create more complexity in managing Brexit on the U.K. side, we believe this will remain more of a regional issue—not a global one.

Our investment approach remains consistent

At MD, our investment decisions are not driven mainly by geopolitical events, but we will consider these elements to make the most appropriate and timely investment decisions for our clients.

On a global macro-economic basis, we maintain a neutral position on the pound sterling and on U.K. equities in general. Within our equity funds, our currency overlay is underweight sterling.

Compared to the benchmark, our equity funds are in a neutral to underweight position in U.K. equities overall. However, we have identified several good investment opportunities in the U.K. that continue to be positive regardless of the election results or Brexit outcome.