Equities view: Firms with international earnings may benefit from sterling weakness

David Docherty, UK Equities Fund Manager at Schroders, said:

“Even if the Conservatives are able to form a government, this result significantly reduces Theresa May's authority and her ability to negotiate Brexit."

Who might be the likely winners and losers on the FTSE?

“An initial flight to safety is likely in UK equities as investors favour resilient companies with international earnings.

“Economically-sensitive domestic consumer companies, such as general retailers, may be vulnerable to a weakening pound.

"This is because foreign exchange moves impact their profit margins and the real disposable income of their customers. Other domestic financial stocks such as banks, housing and real estate may also be weak.”

Brexit, taxation and renationalisation

“Longer term, a recovery in sterling is possible were the market to discern a reduced likelihood of Brexit actually taking place,” Docherty said.

“A stronger growth narrative might also emerge as the opposition parties argue for greater public spending.

“In the meantime, given Labour's greater proximity to power, investors will start to calibrate the impact on companies of the higher taxation and significantly greater government intervention (including nationalisation) inherent in the Labour manifesto.

“As much as these political events drive fierce debate, investors will also place them in the context of other factors. These include the general global economic backdrop, the valuation of UK equities and bottom-up stock selection considerations.”

Fixed income view: Inflation is expected to rise

Alix Stewart, Fixed Income Fund Manager and Stewart, said:

“One of the risks from today’s election result is that prices are likely to rise more than people had been previously expecting. This will likely be due to a combination of increased government spending and a weaker pound."

The outlook for bonds

“The outlook for UK government bonds is more uncertain,” Stewart said.

“However, they are likely to sell off at least initially as investors will require a higher return from them. This is because more government spending means more borrowing through bond markets and the higher inflationary environment.

“Longer term, however, UK government bonds should remain well supported due to the economic uncertainty caused by the political turmoil in the face of looming Brexit negotiations.”

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