By Sara Sjolin, MarketWatch
The outcome of the U.K. election is looking a lot more uncertain than predicted, setting investors up for a major market shake-up once the final results are known Friday morning, analysts say.
Exit polls are pointing to a surprise setback for the ruling Conservative Party, putting Theresa May’s party at risk of losing its majority in parliament. The early results are also pointing to a slight swing in favor of the opposition Labour Party, although not enough to put it in the pole position.
“This is important in light of recent well-publicized pledges by the political parties, but Labour in particular, to change the way these companies do business in their respective sectors,” said Michael Hewson, chief market analyst at CMC Markets, in a note out earlier this week.
U.K. Election: What's at Stake?
The U.K. is heading to the polls for the third time in two years after Prime Minister Theresa May called a snap election for June 8. WSJ's Niki Blasina explains why now, what's at stake and what the election means for Brexit. Photo: Getty Images.
The final result — regardless of which way it swings — could have a huge impact on U.K. stocks, and some sectors are expected to be hit harder than others, according to strategists. Here’s how the different election scenarios could impact British companies:
A large Conservative majority
If the Conservatives win a 50-plus seat majority Thursday, the influence of some of the “hard Brexit” Tory members of Parliament could be diluted and result in more friendly divorce talks with Brussels, according to strategists. A strong Tory showing could also allow May to more smoothly push through necessary Brexit legislation in Parliament and strengthen her hand when negotiating the exit with other European leaders.
“This should allow the [pound] to strengthen in the near term and boost risk assets more generally, due to a reduction in political uncertainty,” strategists at Deutsche Bank said in a note.
“Sterling strength should help to curb consumer price inflation and support domestic consumption while exporter competitiveness would suffer,” they added.
Likely winners would be the domestically focused retailers, such as Marks & Spencer Group /zigman2/quotes/206225481/delayed UK:MKS +0.67% /zigman2/quotes/205629926/composite MAKSY -0.56% , Tesco PLC /zigman2/quotes/203761082/delayed UK:TSCO +0.13% /zigman2/quotes/207784767/composite TSCDY +1.02% and Next PLC /zigman2/quotes/200704121/delayed UK:NXT +0.40% , according to Deutsche Bank.