FTSE 100 Falls on Election Uncertainty

FTSE 100 Falls on Election Uncertainty.

Election jitters driving spot markets down as the polling stations open today. At the time of writing, lunchtime Thursday, the FTSE 100 index had fallen 1.5% to 6828. In addition, as investors look for security in uncertain times gilt yields fell below 2% and the pound has fallen against all major currencies.  Gold has remained largely unaffected, with a slight fall.

The rush away from equities today is understandable given that it is an almost certainty that there will be a hung parliament with no majority. The selection is perhaps the closest election we have seen in modern times and when we have looked at various Parliamentary seat analysis programs, the numbers indicate that it will be extremely difficult for any of the leading parties to form a majority government even with a coalition. The only combination to achieve a majority based upon current forecasts would be for the Labour Party to enter a pact with the Scottish National Party. Ed Miliband has already ruled this out and so our forecast, indeed which we suspect most investors following, is that a minority government will be formed.

Minority government repercussions

For investors this presents total instability for the future. Whether it is tax law, budget changes or any other matter in connection with running this country, any minority government will have to seek support or compromise with other parties. This is why markets are nervous and why we have finally seen falls in the UK stock market that we have been predicting for weeks.

The fall in gilt yields is because more and more investors are rushing to the security of gilts. Demand is up meaning capital prices or up i.e. the cost to buy a gilt is up which therefore drives the return i.e. the yield down.

We can all only six tight and wait for the results over the next 24 hours and even then we suggest a new government may not be formed for a few days as there was so many coalition combinations that may be possible depending upon the final election outcome.

Investment alert status remains at Amber i.e. we are still 'cash parked' but may go green and re-enter the market's if they continue to fall. We will issue another investment alert status at the weekend.