By Josie Cox
U.K. markets rallied Friday as Prime Minister David Cameron's
Conservative Party looked on track to win the U.K. election with a
slim parliamentary majority after drawing far stronger support than
expected.
The British pound rose 1.2% to $1.544, according to CQG. Earlier
it reached $1.5521, a level last seen in late February, from
$1.5243 before exit polls late Thursday.
London's FTSE 100--the benchmark equity index of the country's
largest companies--surged 1.8%, spurring gains on the pan-European
index.
Shares in banks, utilities and construction companies got a big
boost. Economists said that some of the policies of the main
opposition Labour Party had been perceived as potentially negative
for those sectors.
Shares in Royal Bank of Scotland Group PLC, Lloyds Banking Group
PLC and Barclays PLC were all trading between 4% and 6% higher by
late morning, while utility Centrica PLC was up nearly 8%, making
it one of the biggest gainers on the index.
U.K. government bonds, or gilts, also rallied, with the yield on
the 10-year falling around 0.10 percentage point to 1.83%. Yields
fall as bond prices rise.
The Conservatives' strong showing was a far cry from the dead
heat predicted in months of pre-election surveys, which could have
spelled weeks of uncertainty around the country's political
future.
In fact, Mr. Cameron's expected majority gives him the right to
govern without a coalition partner.
"This result is far less complicated than the markets' worst
fears," said Bill O'Neill, head of the U.K. investment office at
UBS Wealth Management, which has $668 billion in assets under
management.
"With certainty will come a renewed confidence from investors in
a more stable and transparent policy climate."
Simon Gergel, chief investment officer for U.K. equities at
Allianz Global Investors, said that this outcome is therefore good
news for the markets.
"Instead of Fallout Friday, today could turn into Frenzied
Friday," he said.
The FTSE 100 and the FTSE 250 index of midcap
companies--traditionally more exposed to the domestic economy and
therefore particularly vulnerable to political jitters--were
resilient in the lead-up to the vote.
So far this year, the FTSE 100 is 6.5% higher. The FTSE 250 is
up 11.5% in 2015, thanks to a near 3% gain Friday.
Rob Jones, co-head of European equities at UBP, said the outcome
was encouraging him to look for buying opportunities in the U.K.
stock market.
"The result makes it more likely the U.K. will sustain levels of
economic growth and should provide some boost to overall consumer
sentiment," he said.
Still, some strategists and investors cautioned that a
government led by Mr. Cameron could hurt markets in the longer term
because of his pledge to hold a referendum on whether Britain
should stay in the European Union.
Phyllis Papadavid, senior global currency strategist at BNP
Paribas, said that the "referendum risk" would "haunt the currency
at a later stage."
Invesco Perpetual veteran Neil Woodford, head of investment at
Woodford Investment Management, also struck a more cautious
tone.
"A less conclusive result would clearly have been worse for the
economy because of the associated political uncertainty, but our
assessment of the U.K. economy suggests we should expect modest
growth at best over the next few years," he wrote in a note.
"[The election] certainly doesn't remove all of the political
uncertainty," he said.
Write to Josie Cox at josie.cox@wsj.com
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