Pound soars and stocks surge after Tory victory

London

STERLING and domestic UK shares soared in the immediate aftermath of the Conservative's victory and exceeded expectations by a wide margin.

The currency hit a daily height of US$1.35, up almost 5 per cent on the previous day, but after profit taking fell back to US$1.33. Nevertheless, the currency is still 10.8 per cent higher than its August 2019 low of just under US$1.20. Sterling was also substantially higher against the euro and Singapore dollar.

Following a combination of market enthusiasm and relief that Prime Minister Boris Johnson achieved a majority of 76 and hard-left Labour opposition leader Jeremy Corbyn was resoundingly defeated, the FTSE 250 index of mainly domestic shares jumped by 10.6 per cent to 21758. The index is currently 17 per cent higher than mid-August levels.

Shares that rose between 5 and 15 per cent included Marks & Spencer, Barclays Bank and home builders Persimmon and Barratts. Mr Johnson's win also removed fears that utility stocks such as National Grid would be nationalised by the opposition Labour Party.

The FTSE 100 index, which mainly includes multinational companies and other exporters rose by 4.2 per cent to 7,407 points. The UK results and hopes of a US-China trade deal also lifted German, French and other European markets. During recent weeks, Goldman Sachs and UBS have stated that UK shares were relatively undervalued compared with pricey Wall Street.

Their view is that there is pent-up demand for British assets and foreign investment flows into the UK which will lift the stagnant economy in the first quarter of next year.

In contrast, Brendan Brown, founding partner of Macro Hedge Advisors contended that the surge in currency and stock markets were a "selling opportunity". He reasoned that the government would be boosting spending and would ignite inflation. The combination after a short-term lift would once again be followed by a downturn in the pound in the medium and long term.

Mr Johnson's resounding triumph could spell the break-up of the union that held England, Wales, Scotland and Northern Ireland together. Mr Brown reasoned that the "one nation" Tory party was effectively an English nationalist party and there was a risk that Northern Ireland would leave the union and join the Republic of Ireland.

A majority in Northern Ireland voted against leaving the European Union and anti-Brexit parties took more seats in the province for the first time.

Nationalists said the result paved the way towards a vote on whether there should be a united Ireland. "We are heading towards a border poll, I can't give you a definitive date, but we need to do the spadework now and prepare ourselves," Sinn Fein leader Mary Lou McDonald said.

"We need to, in an orderly fashion, structure the conversation about a new Ireland and constitutional change. I don't think unionism should be alarmed or frightened, this is a huge opportunity for everybody who lives on this island."

Scottish nationalists captured 48 of the 59 Parliamentary seats in Scotland and are now seeking a referendum. Scotland, part of the union for 300 years, voted against secession from the United Kingdom with 55 per cent of the vote in 2014.

But Scots backed staying in the European Union in the 2016 referendum and Nicola Sturgeon, leader of the Scottish National Party argues Brexit means they should have another say on independence. "Some will be celebrating the wave of nationalism that is sweeping both sides of the border." Ms Sturgeon said the result was a clear mandate for a second plebiscite on Scottish independence.

"Tonight .... is clearly a good night for the SNP (Scottish National Party)," said Jo Swinson, leader of the Liberal Democrat Party who lost her own Scottish Parliamentary seat to the SNP.

Legally, Mr Johnson has to give permission for another Scottish referendum, but pressure will be on him to find ways to protect the United Kingdom from breaking up.

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