Can a Labour Victory secure the Markets?

Construction companies, energy companies and a 500-year-old postal company are among the stocks most exposed to the July 4 outcome of the British election, as the opposition Labor Party leads comfortably in the polls and will – unexpectedly – the next government of the country.

Frustrated by sluggish UK growth, mounting debt and government scandals, investors are broadly positive about the widely expected change in government. And this despite the fact that Labor does not have policies that are particularly different from those of the Conservatives or the kind of fiscal firepower that could provide a significant boost to the economy, he adds.

Still, an increase in spending is likely, which is expected to help domestically oriented companies, strategic analysts say. Meanwhile, the prospect of better ties with the European Union after years of post-Brexit damage is seen as a positive, while Keir Starmer’s centrist agenda promises to avoid surprise tax hikes.

After abandoning British stocks en masse following the 2016 Brexit vote, investors are turning more positive. Fund managers ranked the UK among their preferred European markets in Bank of America’s latest monthly survey, up from being the least desirable as recently as October.

Funds that invest in UK mid-cap companies, which are typically more exposed to fluctuations in the local economy, had consecutive net monthly inflows for the first time in three years.

Property and the British election

Homebuilders could stand to gain a lot. Labor has promised to bring back mandatory housing targets and ease planning restrictions as it aims for 1.5 million new homes over five years. The Conservatives have announced a similar target, but intend to achieve it through tax cuts, including scrapping stamp duty for first-time buyers of homes worth less than £425,000.

It is beginning to dawn on the analyst ranks that a Labor victory in the UK election will bring a stable government that will also support commercial real estate. Portfolio valuations of London-based property investment firms have already hit record lows.

Energy and utilities

Shares in North Sea oil companies fell after Labor announced plans for a £1.2bn emergency tax and blocked new oil licences. Serica Energy Plc and Enquest Plc were the most affected.

When it comes to utilities, both Labor and the Conservatives are broadly supportive of zero-emissions ambitions and decarbonising the electricity grid.

Investors should use any weakness related to the British election to add exposure to utilities SSE Plc, Centrica Plc and Drax Group Plc.

There is also a sharp focus on water companies amid rising bills, sewage leaks and debt problems at Thames Water Ltd. The sector faces “increasing political risk” as some Labor MPs have called for special measures, including restrictions on dividends.

Royal Mail

Labor used its manifesto launch on June 13 to promise to scrutinize Czech billionaire Daniel Kretynsky’s takeover bid for Royal Mail owner International Distribution Services Plc.

Many analysts still believe whoever wins the vote will block Kretinski’s £3.6bn bid, given Royal Mail’s vital role and iconic status, with roots dating back five centuries. IDS shares have reflected this, having fallen more than 4% since the manifesto was published to around 317p, well below Kretinski’s offer of 370p per share.

British elections and banks

Labor has pledged to review plans to further reduce the government’s stake in NatWest Group Plc if it wins the election. While the current government has been steadily reducing its exposure, the Treasury remains NatWest’s largest shareholder after bailing out the then Royal Bank of Scotland with £46bn during the 2008 financial crisis.

Meanwhile, bank shareholders are worried that any incoming government will change the way the Bank of England pays interest to lenders. The top four banks, NatWest, Lloyds Banking Group Plc, Barclays Plc and Santander UK, earned £9.23 billion in interest payments last year, and Bloomberg Intelligence estimates that moving to a tiered payment system could cost lenders around 1 .5 billion sterling.

Outsourcing

British outsourcing solutions company Serco Group Plc is “generally seen as one of the losers in Labor governments”. This is because the party is seen as less likely to opt for the gradual outsourcing of public services to the private sector and could even overturn some existing deals.

Lucky games

The election has caused uncertainty about when new gambling policies will be implemented, affecting measures such as affordability checks, online gaming design and age verification.

Rank Group Plc, which owns Grosvenor Casinos, fell as much as 12% the day after the election was announced on concerns over delays in reforms. Flutter Entertainment Plc and Entain Plc, which have a larger share of overseas revenue, could prove more resilient.

About the author

The Liberal Globe is an independent online magazine that provides carefully selected varieties of stories. Our authoritative insight opinions, analyses, researches are reflected in the sections which are both thematic and geographical. We do not attach ourselves to any political party. Our political agenda is liberal in the classical sense. We continue to advocate bold policies in favour of individual freedoms, even if that means we must oppose the will and the majority view, even if these positions that we express may be unpleasant and unbearable for the majority.

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