Markets cheer a Tory victory in the U.K.

The U.K. equity market (represented by the FTSE 100 Index) rose more than 2% in response to David Cameron’s conservative Tory party’s surprising victory today. Investors had been worried that election results would be mixed and that it might take days or weeks to form a new government. Cameron’s decisive win (326 out of 650 seats) relieved market concerns about a divided parliament.

Over the past few years, the Tory party has succeeded in reducing the budget deficit significantly by implementing an austerity program that raised taxes, cut numerous social benefits to millions, eliminated up to half a million public-sector jobs, and reduced budgets for government departments. It now appears that Cameron’s party will be able to continue its work unimpededly toward eliminating the budget deficit.

Cameron’s win is likely good news for equity markets as the conservative party has a reputation for being more business friendly than the defeated Labour party. We believe companies in the energy, financial, building, and real estate sectors will benefit as the opposition party’s threat of higher taxes and stricter financial and electricity sector regulation are no longer on the table.

Cameron has promised to hold a referendum by the end of 2017 on British membership in the European Union (EU). While the referendum is two years away, the United Kingdom’s possible exit from the EU could have consequences for the whole economy, including dampening business investment and the country’s credit rating. Cameron has indicated that he would like Britain to stay within the EU but that changes are needed, including changes to the terms of current EU employment and social policies.

The views expressed represent the Manager's assessment of the market environment as of May 8, 2015, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice and may not reflect the Manager's views.

The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization.

Investing involves risk, including the possible loss of principal.

Past performance does not guarantee future results.

Indices are unmanaged, and one cannot invest directly in an index.

International investments entail risks not ordinarily associated with US investments including fluctuation in currency values, differences in accounting principles, or economic or political instability in other nations. Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility and lower trading volume.

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