The Scottish Mail on Sunday
If there is mayhem in markets, focus on the long term
THE most extreme reaction to the first indications of the General Election result was in the currency market, where the pound fell against the dollar before rallying slightly. The worry is that sterling could fall further if the UK gets a bad Brexit deal.
Figures from currency specialist FairFx show the pound dropped against 158 different currencies on Friday morning.
But, while that might be bad news for anyone heading off on holiday, it is a boon to companies which make up the FTSE100 Index. Around threequarters of the earnings of these firms are made overseas, so if the pound is weaker their profits are boosted. As a result, the Footsie closed on Friday higher than it started.
More pain will be felt by those companies which have most of their operations in the UK.
The FTSE250 Index dropped almost 0.75 per cent on Friday morning. This was largely driven by fears that these businesses could struggle if the economy slowed as a result of the uncertain election outcome. But it too closed the day slightly up.
With a hung Parliament and the possibility of yet another General Election on the horizon, investors should be prepared for stock market volatility over the coming weeks. But it is important to try to ignore any short-term rises or falls in the stock market and stick to a long-term plan.
Mark Dampier, head of investment research at Hargreaves Lansdown, says: ‘I would urge investors to resist the temptation to make knee-jerk reactions as a result of Friday’s election outcome.’
Adrian Lowcock, investment director at asset manager Architas, says: ‘Political upheaval can bring into focus any shortcomings in your investment portfolio, so it is a good opportunity to review your finances.’