Election 2015: Markets calm ahead of voting but potential uncertainty ahead

Activity on the FTSE 100 was subdued in morning trading on 6 May as the market braces itself for potential fallout from the general election.

Stocks edged up 0.20%, leaving Britain's premier share index trading at roughly the same volumes all week on 6,941.54 points.

Despite fears of potential turbulence as a result of a likely hung parliament, Ian Richards of broker Exane BNP Paribas does not believe there will be a major effect after the result and any weakness could be positive.

"Our work to this point results in us doubting that a major 'election effect' has or will influence the UK stock market, at least with any longevity. Any undue relative weakness in the aftermath of the 7 May vote would likely increase the relative appeal of the UK compared with other European markets," he said.

However, Richards added that certain stocks are sensitive to different outcomes, with Labour's pledge to regulate the energy market potentially posing a risk to energy stocks, such as British Gas owner Centrica.

He said: "The implementation of such a policy has the potential to seriously disrupt Centrica's business model."

Bank shares may also come under pressure with the "prospect of higher targeted taxes (bonus taxes, levies) and a promise to introduce more competition into the retail banking market".

Housing and transport also face major policy upheaval and could be in for a rough ride.

Currency

The area that has seen a small reaction to the election is currency, with the pound weakening slightly versus the euro recently.

Jane Foley, senior currency strategist at Rabobank, believes complicated negotiations between parties after the election could put further pressure on sterling.

She said: "Insofar as a two-party system has dominated the UK political landscape post the Second World War, there is not much experience of complicated coalition negotiations in the UK and this could be a source of concern of sterling investors. As the opinion polls currently stand, this election has the capacity to create far more uncertainty than the last."

Europe

Providing further cause for concern is Britain's fractious relationship with Europe, which could deteriorate further in the event of a Conservative victory and a referendum is called.

Foley said: "Another complicating factor is the issue regarding the UK's membership of the EU. The fact that the Ukip party has risen to become England's third largest party in the opinions polls (though not in the allocation of parliamentary seats) is a measure of popular discontent with the UK's EU membership.

"There is a risk that a UK exit from the system would create further uncertainty for investors and therefore downside pressure for the pound."