(Bloomberg) -- As UK voters head to the polls, money managers and bank strategists are favoring the nation’s markets in anticipation of a period of political stability following Thursday’s election.

Citigroup Inc. and Toronto-Dominion Bank recommend buying gilts, pointing to their relative security compared to other government-bond markets. Stock investors picked the UK as their joint most-favored European equity market in Bank of America’s June survey of fund managers. And the pound is fresh out of a month in which its exchange rate versus the euro averaged the strongest in almost two years.

That bullishness reflects markets’ overwhelming sense of calm around the outcome of the UK election — especially at a time when the outlook is less certain in neighboring France and elsewhere. Polls conducted before voting began on Thursday have consistently pointed to a landslide victory for the center-left Labour Party and Keir Starmer, ending 14 years of Conservative rule. That’s coincided with volatility across British markets falling to near multi-year lows. 

“Dull politics is good for investment,” said Jane Foley, head of FX strategy at Rabobank. “There could be a bit of a rally for sterling on the election results on the hope that we can see a few years of boring stable politics, and therefore an improvement in investment growth.”

The pound hit a three-week high on Wednesday, while the FTSE 100 Index had its best day since June 20. Gilts rallied, with the 10-year trading around 4.17%.

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TD Bank strategist Pooja Kumra said the UK should offer more fiscal and political stability versus the US or France, recommending investors buy 30-year gilts and sell US equivalents. Citi strategists, including Jamie Searle, said that “boring is bullish” for UK debt, and predicted a positive backdrop for gilts in the wake of the vote.

Tight Ranges

It’s a far cry from recent years, where investors labeled the UK the “problem child” of Europe. Scotland’s referendum on independence, the Brexit vote, and the years of fractious negotiations that followed caused gyrations in the pound. Liz Truss’s disastrous premiership of 2022 roiled markets anew, with a sudden rise in bond yields triggering unprecedented forced-selling from leveraged pension-fund strategies.

The wager investors are making is that this election will draw a line under that tumult. Indeed, the pound traded in its tightest range in five months in June. And short-term FTSE 100 volatility is hovering at extremely low levels — particularly in contrast to volatility gauges on the Euro Stoxx 50, which have soared amid little clarity on the outcome of France’s second election round on July 7. 

London’s FTSE 100 and FTSE 250 benchmarks also outperformed most euro-area bourses last quarter.

“Whatever we think about the election campaign, the results, and what is likely to come after, it will provide the UK with some much-needed certainty,” says UBS Wealth Management economist Dean Turner, noting a broad lack of excitement surrounding the UK election. “And this could be beneficial for UK assets if investors once again warm to the attraction of our markets.”

Traders will get their first read on the results at 10 p.m. in London, when exit polls are published. This mass survey of tens of thousands of people after they cast their ballots has generally given an accurate prediction for the outcome of the election, more so than the many snapshot surveys of voters’ intentions conducted during the campaign.

Some polls taken before election day have suggested the ruling Conservatives could lose so many seats that the Liberal Democrats become the second-largest party in parliament and the official opposition. Deutsche Bank AG strategist Shreyas Gopal described such an outcome as a “potentially positive tail risk” for the pound because the latter’s pro-EU stance could help push a Labour government to pursue closer ties to the bloc.

“The UK has a positive political backdrop from an investment perspective so UK assets are attractive,” said Ella Hoxha, head of fixed income at Newton Investment Management, in an interview with Bloomberg TV earlier this week. “The UK curve is quite steep so the long end of gilts is interesting. The pound is interesting. Even UK equities are attractive.”

--With assistance from Cecile Gutscher, Naomi Tajitsu, Michael Msika and James Hirai.

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