Markets have been spooked by today’s shock election result, with the pound sinking to its lowest level for nearly two months and UK equities diverging.

    Having been expected to secure a larger majority than the narrow one of 17 they previously held, the Conservative government has instead seen its numbers dwindle to the point where it no longer commands a majority in the house.

    With no majority, a hung parliament now ensues unless a coalition can be formed, and markets have reacted swiftly to the uncertainty.

    As well as the sharp fall in the pound, which has gone from $1.295 to $1.2705 overnight, equity markets have been volatile, with the FTSE 100 initially jumping over 1% before settling up around 0.5%, and the FTSE 250 sliding nearly 1%.

    Viktor Nossek, director of research at WisdomTree in Europe, said the result had been a real shock for markets which had, like the polls suggested, expected the Conservatives to increase their majority.

    "There will be no notion of strong and stable in currency markets after this vote. The pound has tumbled overnight, and this could be just the start, with volatility likely to remain elevated. Indeed, as the ramifications of this vote become clearer, the falls against the US dollar and other currencies could become more pronounced.

    "Looking across markets in general, uncertainty will reign as parties try to form a government, so expect an increase in volatility in the near term and a focus on companies which are global in nature and therefore protected somewhat from domestic events in the U.K.

    "The vote also kills off the notion of hard Brexit, and means months of fractured negotiations within Parliament over the final terms the UK pushes for with Europe."

    Michael Browne, Portfolio Manager for European Equities at Legg Mason affiliate Martin Currie, said some parts of the investment landscape appeared vulnerable, while others could benefit.

    “The result will be negative for UK assets such as commercial real estate and retailers. There remain positive signs for housebuilders, however. The sector is needed, whoever the winner, and with no outright victor in this case, could be even more of a focus for government support,” he said.

    “Importantly, all policy options are now on the table, as no manifesto has emerged a clear winner. For instance, will the proposed corporate tax cuts be shelved in favour of spending on the police, NHS or education? In addition, the Conservative surge in Scotland looks to have killed off the chances of a second independence referendum – removing an extra level of uncertainty.

    “For markets, the risk premium for UK assets, which was already high, has risen another notch, but not massively so. With Europe powering ahead, the UK could become a quiet backwater, of less relevance to international investors, and will remain that way, until another election is called and the results are in. That has been our view for a while and will continue.”

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