Are there any safe-bet stocks for investors this election?
The Conservatives and Labour have not agreed on much during this election, but there are some safe bets for investors looking to prepare for every eventuality.
Political parties have not been able to agree on much this election. Whether it is Brexit or how the economy is run, the Conservatives and Labour have opposite views on almost everything. The Conservatives want to ‘get Brexit done’ so the UK is out of the EU by January, have a new trade deal signed by the end of next year, and continue to believe in the power of free markets. Labour wants a second referendum within six months, the economy to work ‘for the many, not the few’, and for the state to play a significantly greater role through nationalisation.
Election injects fresh uncertainty into markets
There is a lot at stake this election and, on Friday, we are hoping the current uncertainty plaguing the markets will be resolved. Still, there is a chance we could end up with a hung parliament, which is the last thing the country needs when it is craving certainty.
This makes it hard for investors to prepare for every eventuality. The fact that Labour’s nationalisation plans target the likes of energy suppliers and water utilities – usually relative safe havens that help shield investors' cash during times like these - makes this even harder.
What stocks are safe bets this election?
But, believe it or not, the major political parties have similar policies in some areas, which means there are some safe bets regardless of this week’s result. For example, the Conservatives, Labour and the Lib Dems all agree that spending on defence should be at least 2% of gross domestic product (GDP), back UK shipbuilding and support the Trident nuclear deterrent. This suggests defence stocks like Babcock or Rolls-Royce are safe bets, and both would shrug off any calls for arms exports to Saudi Arabia to be halted as neither sells a huge amount to the country. The growing importance cybersecurity has been recognised by all parties, which should benefit firms like Sophos that help protect the National Health Service (NHS) from cyberattacks.
Renewable energy will continue to grow, although parties are advocating different types. They all back increased funding for technologies involving hydrogen, energy storage and carbon capture, and believe the country should have more nuclear energy.
The high street will be given some relief as all parties are looking to overhaul business rates, which has been one of the biggest cost burdens on retailers. The Conservatives want to lower them while Labour and Lib Dems want to shift the costs onto landlords rather than tenants. The fundamentals remain strong for housebuilders because there is still a large supply deficit, even if they might have to face stricter rules like a ‘use-it-or-lose-it’ policy on land. And all parties, to varying degrees, are in favour of making more progress on the availability of medicinal cannabis.
What stocks are at risk regardless who wins the election?
Equally, there are some stocks that will face trouble regardless of the result. There is consensus that stricter rules need to be placed on gambling and that big tech needs tighter regulation and to pay more tax. All parties have condemned the wild sums people must spend on social care and agree there is no future for fracking in the UK based on current evidence.
How will markets react to the election result?
With so much at risk, it is understandable that the election has weighed on UK equities. The market wants certainty more than anything. With the Conservatives championing free markets and promising a route to resolving Brexit, the party’s re-election is in the market’s interests. While most businesses won’t welcome Brexit, they will embrace the certainty the Conservatives offer, especially as Labour wants to reopen the debate with a second referendum and overhaul so many parts of the economy. It is fair to expect a bounce in UK equities if a Conservative majority is delivered, but any other result could spell trouble.
For the risk-averse investor, consider the few safe bets that remain in the market. For those with a greater appetite, now could be the time to capitalise and take advantage of cheaper entry points.
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