What stocks benefit from a Conservative win?
The Conservatives have come out on top in the election and won a huge majority. What stocks are set to benefit?
Markets and the pound rise as Conservatives win the election
The Conservatives have won the election and prime minister Boris Johnson has been re-elected with a large majority. As the results came in and confirmed the exit poll, sterling rallied against all major currencies. GBP/USD hit its highest level since the middle of 2018 while GBP/EUR hit its highest level since late June 2016. Meanwhile, theFTSE 250, which is mostly comprised of midcap firms focused on the UK market, has climbed to a new all-time high, while the rise in the pound capped the gains of the more internationally-focused FTSE 100.
Most UK-listed stocks will welcome the result of the election because Labour posed a threat to all publicly-listed businesses. The party wanted to radically overhaul the economy, give the state a larger role by nationalising industry, and to rewrite the rules for listed firms including stricter rules on climate change and stronger rights and representations for workers.
The Conservative win, however, means the public have voted for the status-quo and the party that traditionally champions free markets and business. The large majority has also removed the uncertainty from British politics and, in the short-term at least, Brexit. The majority should give the Conservatives the power to deliver Brexit as planned by the end of January 2020 and takes the immediate threat of no-deal off the table – although this could return late next year if negotiations over future trade do not go to plan.
What stocks will benefit from the Conservative win?
While the outcome of the election has resulted in a general bounce for UK equities there are some stocks that have jumped on the back of the Conservative win, or possibly a Labour loss.
Lets start with the stocks that Labour was hoping to nationalise.
Energy suppliers: Centrica, SSE and National Grid
Shares in Centrica, the owner of British Gas, soared to their highest level since the start of July on Friday morning while SSE also jumped to levels not seen since 2017. This is because the threat of being nationalised by the Labour government has been removed.
National Grid was also being targeted by Labour and this morning has climbed to its highest level in over two years.
Water utilities: Severn Trent and United Utilities
Similarly, water utility stocks have also rallied. Severn Trent shares hit their highest level since mid-2017 while United Utilities also saw a rise, albeit slightly less pronounced. Again, there were concerns over Labour’s plans to nationalise the industry.
Labour also wanted to carve-out BT Group Openreach division, which is responsible for managing and developing the UK’s broadband network. While the party did not want to nationalise the whole of BT, the loss of Openreach would have been stark as it has become the main driver of earnings for the business and provides the company with its monopolistic edge in the market. BT shares have reclaimed most of the losses it had accumulated since the election was called.
Royal Mail has also avoided being taken into public hands. Shares rallied to their highest level in six months but has not rallied as much as other stocks, partly because it still faces underlying problems such as the ongoing threat of industrial action and the shift in customer habits away from letters toward parcels, which is a much more competitive business.
Railway stocks: Go-Ahead, Stagecoach and Firstgroup
Labour also wanted to stop public services being provided by the private sector and intended not to renew contracts for railway and bus providers when the existing ones end, which would have gradually eaten away at revenue for firms like Go-Ahead Group, Firstgroup and Stagecoach. All three stocks have risen since the market opened on Friday morning, although not as much as some other sectors.
Oil and gas companies
Oil and gas companies operating in the UK will also be thankful that Labour did not win the election. The party was promising to introduce a ‘windfall tax’ on the industry to help fund the transition to cleaner energy. However, not only have they avoided that tax but they will reap the benefits of the ‘transformational sector deal’ that the Conservatives have promised UK oil and gas firms.
The largest players like BP and Royal Dutch Shell have not experienced much election-driven movement but the result in certainly in their long-term interests. Shares in smaller firms like Cairn Energy, however, have experienced a large lift this morning.
The Conservatives have promised to continue promoting the idea of home ownership, which stands in stark contrast to Labour’s policies built around more social housing. The Conservatives have also vowed to extend the Help to Buy scheme that has proven so profitable for housebuilders to 2023, which means the fundamentals of the market look strong.
Public service providers: Serco and G4S
G4S and Serco, which run public services such as prisons and detention centres, have also seen their share prices rocket following the election as they too were hoping to avoid a Labour government, which had promised to take all contracts back in-house and stop all private prison contracts. The Conservatives, on the other hand, are more than happy for these firms to continue providing these services and has in fact promised to bolster the capacity of prisons, which could be in their favour.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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