Shares of U.K. companies focused on the domestic market could tumble in the wake of the shock hung parliament result in the country's general election while shares in export-oriented U.K. companies could see a further rally, according to Deutsche Bank.
Sterling fell precipitously as soon as exit polls released at 10 p.m. London time on Thursday suggested that incumbent Prime Minister Theresa May and her Conservative party would struggle to cobble together anything more than a razor thin majority. The actual results confirmed those fears.
By 6 a.m. London time on Friday, with a hung parliament confirmed, sterling had fallen by around 1.5 percent against the U.S. dollar to sit at $1.2754, having fleetingly ticked up just above the $1.30 level as recently as May 19.
This outcome is likely to lead to a repeat of the dynamic seen in the immediate aftermath of the Brexit vote last June, in which export-oriented U.K. stocks benefited from a drop in sterling while more domestically-focused companies responded more poorly to the heightened prospect of economic and political instability, the research analysts said in a note published on June 6. A weaker currency boosts the earnings of an exporter once converted back into the local currency.