Friday 13 December 2019 3:37 pm

UK stocks and sterling surge after Conservative election win shuts out Labour

UK stocks surged today after the Conservatives secured a decisive majority in the General Election, boosted by rallying retailers, housebuilders and utility firms.

The FTSE 100 index climbed over one per cent in morning trading, but was held back slightly by a strong sterling, while the FTSE 250, however, leapt as much as four per cent.

Read more: Conservative election victory sparks sharp recovery in housebuilder stocks

The blue-chip index was hovering around 1.48 per cent by mid afternoon, while its smaller counterpart was sitting at just under 3.5 per cent.

The pound largely held steady after rising sharply last night following news the Conservatives were on course to secure a large majority in the General Election.

It was up 1.6 per cent against the dollar and 1.3 per cent against the euro by 3.30pm.

“The first headlines were written overnight by sterling when it rallied to a 19-month high against the dollar and a three-year high against the euro”, AJ Bell investment director Russ Mould told City A.M.

The relatively subdued FTSE 100 rise continues the ongoing trend of the index coming under pressure whenever sterling is performing well. 

The blue-chip index is dominated by international companies, while its smaller counterpart is more domestically-focused. 

“Even accounting for the size of the win, the double-digit percentage gains for many FTSE 100 names will come as a surprise – the market was prepared for a Conservative win, but not one this conclusive,” said IG chief market analyst Chris Beauchamp.

The index’s biggest risers were banks, estate agents, and retailers, with rises among the former two likely driven by their exposure to mortgages and buy-to-let, given that Prime Minister Boris Johnson discussed cuts to land tax and stamp duty on the campaign trail.

Virgin Money led the risers, gaining over 16 per cent, with Onesavings also making a showing in the top ten. Estate agents Foxtons and Savills also both rose over ten per cent. 

Top 10 UK risers

Company % RiseShare price (p)
Virgin Money19.95218.90
Taylor Wimpey14.53199.4
Just Group13.8278.65
Tullow Oil13.6558.94
International Airlines13.15629.80

Michel Perera, chief investment officer at Canaccord Genuity Wealth Management, said that following the rises, “most short-term gains have already been priced in.”

“The uncertainty of the political situation though has meant a lot of investors have been sitting on cash – we’d expect this to start dribbling into the markets over the next few months,” he continued.

But GAM investment director Charles Hepworth said the road ahead remains unclear.

“The question going forward is can sterling hold onto its gains of the last few months?  This all depends on phase two of the Brexit bus-ride,” he said.

“Short-term strength in sterling is obvious with this political gridlock unlocked, but medium-term strength into next year may not be so obvious.”

Among the FTSE 100’s biggest fallers were those with exposure to international earnings, such as drugmakers Glaxosmithkline and Astrazeneca.

“Those quality dependable solid names that people have lodged on to for reliable earnings growth like Rentakill and Diageo,” said Mould. 

Read more: BT shares jump as it dodges Labour nationalisation

“The market is thinking – rightly or wrongly – that we’re going to end the Brexit logjam, and that the government is going to spend money, which would spur cyclical growth and push up retailers.”

“People are thinking there could be some growth coming out of this, and some inflation. If that is the case, then everything that’s worked for the last ten years isn’t going to work any more,” Mould added.