Political uncertainty following the shock election result will lead to more volatility in the pound which could feed inflation, according to investment experts.
The 8 June election resulted in the second hung parliament since 1974, with no party winning an outright majority in an outcome that will create uncertainty about the path ahead for Brexit.
Theresa May working to form a government through a deal with the Democratic Unionist Party, but it would have a small majority, meaning challenges ahead for the Brexit negotiations due to start on 19 June.
The currency markets reacted instantly to the exit poll, with sterling falling significantly against the dollar and euro, and is expected to remain volatile.
The FTSE 100 saw gains as the biggest UK companies with significant overseas earnings benefitted from the weaker currency, Meanwhile, the 10-year real gilt yield fell slightly while other yields were broadly flat when markets opened.
Throughout the campaign, equity markets had been up a modest amount, gilt yields were flat and sterling marginally stronger, as various opinion polls suggested a Conservative victory - albeit smaller than had been expected.
Hymans Robertson head of investment consultancy John Walbaum said there will be more uncertainty going forward but the equity markets are reacting "fairly calmly".
"The main impact, as you would expect, is on the pound, which is down around 2% against the dollar and euro. If that continues, while it will have a short-term inflation impact on the UK, the underlying position won't be affected that much. Real inflationary pressures remain low and will continue to stay low until we see meaningful increases to wages."
Kempen Capital Management head of investment strategy Nikesh Patel said: "Gilt yields remained relatively stable with 10-year nominal yields broadly flat as the market opened. 10-year real yields however fell by 0.04% as investors sought protection against inflation, which is likely to increase as sterling falls. Moves in longer date yields, which have a greater impact on the funding ratios of pension schemes were broadly unchanged.
"As a whole these moves are likely to be broadly neutral for the majority of pension funds. UK equities have risen slightly and those companies that own foreign currency assets will also have benefited. However yield moves have, on balance, moved down pushing up the value of scheme liabilities."
AXA Investment Managers senior economist David Page added: "Gilt yields have to weigh a number of factors. A more accommodative monetary outlook should weigh on yields. However, further sterling weakness and the possibility of a sharper rise in inflation could put upward pressure on break-even inflation.
"That said, the outlook for gilts is likely to be more determined by the outlook for domestic policy. The government's increased flexibility to manage the finances should underpin confidence in the gilt markets. However, gilts could remain vulnerable to any shift in government policy if it loosens fiscal policy in response to this election."
Xafinity director Sankar Mahalingham said the impact on investors and pension schemes is likely to be marginally negative, unless they are hedged.
"This is another stark reminder of the volatility inherent in the investment markets. With the various economic, financial and political events regularly emerging, market volatility is never far away. Indeed the commencement of Brexit negotiations in the coming days or weeks is likely to lead to more uncertainty.
"We would not recommend any knee-jerk reaction. Trustees should pause to see if things settle down and assess the position with a cool head."
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