An FT poll of ten leading investment funds shows they’d prefer a clear victory by the Tories or Labour to a hung parliament. The latter could delay decisive action to tackle Britain’s debt pile and thus “lead to a short-term increase in yields”. The impending political stalemate also makes sterling look “extremely vulnerable”, says Maurice Pomery of Strategic Alpha.
For stocks, a slide in sterling would bode well, as it implies higher profits for the FTSE 100, which gets most of its revenue from abroad. But a sharp rise in gilt yields triggered by an ambiguous result would hurt equities by making stocks less appealing than gilts. A large rise in ten-year yields could see the FTSE fall to around 5,100 reckons Citigroup. But a Tory majority, and hence falling gilt yields, could mean a rise of more than 6,300.
Yet the key influence on the “increasingly cosmopolitan” FTSE 100’s direction in the medium-term is global risk appetite and the state of the US and global economy, says Neil Hume in the FT. The “real impact” of this election will not be felt in the stockmarket.