Investors got yet another surprise election headline out of the U.K. on Thursday after no party achieved a majority in Parliament. The vote may have major implications on the approach the U.K. takes to its exit from the European Union, a key area of uncertainty for investors who own stocks with exposure to the U.K.
While uncertainty is rarely a positive for financial markets, the lack of a clear mandate may prevent Prime Minister Theresa May and the Conservative Party from taking a more aggressive approach to Brexit negotiations, which were set to begin on June 19.
[Read: What Populism Means for the Stock Market.]
“Today’s result will in part be seen as a vote against a definitive break from the EU, and the market may soon begin to reassess the probability of a so-called hard Brexit,” UBS strategist John Wraith says.
A hard Brexit could potentially involve the U.K. and the EU applying tariffs and other trade restrictions, a scenario which would be bad news for the large British companies that do the majority of their business outside of the U.K.
Many of these British companies trade on the FTSE 100 Index, which initially bounced more than 1.3 percent on Friday on the news that a hard Brexit may no longer be the most likely path forward. However, the FTSE 250 Index, which includes companies with more exposure to the domestic U.K. market, was down slightly on the day.
The U.S.-listed iShares MSCI United Kingdom ETF (ticker: EWU), which tracks stocks representing roughly 85 percent of the total market capitalization in the U.K., initially dropped more than 1.1 percent following the vote as U.S. investors weigh the uncertain future of the U.K.
Fortunately, the political drama in the U.K. will likely have little impact on the majority of global financial markets in the long term.
“The U.K. is just 2.5 percent of world GDP, and it’s hard to see significant implications for global investment markets,” AMP chief economist Shane Oliver says.
[See: The 10 Best European Stock ETFs on the Market.]
In the U.S., the Standard and Poor’s 500 index was up 0.4 percent Friday.
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Possibility of ‘Soft Brexit’ Is Good News for Investors originally appeared on usnews.com
