ETFs
UK stocks and ETFs to watch after Keir Starmer and Labour win
Member of the Labour Party Keir Starmer is set to become the new Prime Minister of the United Kingdom with a victory over the Rishi Sunak-Conservative Party led by the Conservative Party.
The victory marks the end of 14 years of Conservative Party dominance in the UK. The Labour Party will also have one of the largest government leads in the country in 25 years, as reported by CNN.
“A mandate like this comes with great responsibility,” Starmer said on Friday.
Starmer promised to put “country first, party second” in his victory speech.
UK Stocks and ETFs: Gains in UK stocks and ETFs were minimal on Friday, with election results potentially priced in and others analysing what Labour in control means for some sectors.
THE iShares MSCI UK Exchange Traded Fund (NYSE:EWU) rose 0.5% on Friday. The UK’s largest ETF manages $2.8 billion in assets and holds 80 stocks representing the country’s largest companies.
The main titles are:
AstraZeneca SA (NASDAQ:AZN)
Shell programmable logic controller (NYSE: SHEL)
HSBC Holdings (NYSE: HSBC)
Unilever SA (NYSE:UL)
BP PLC (NYSE:BP)
RELX programmable logic controller (NYSE:RELX)
GlaxoSmithKline PLC (NYSE: GSK)
Rio Tinto SA (NYSE:RIO)
Diageo SA (NYSE:DEO)
Glencore SA (OTC:GLNCY)
Eight of the ten largest stocks are up on Friday at the time of writing, with HSBC and Rio Tinto trading lower.
The largest weightings in the iShares ETF are the financial services (19.3%), consumer staples (16.4%) and energy (13.4%) categories.
THE Franklin FTSE UK Exchange Traded Fund (NYSE:FLGB) also offers exposure to the country with 107 stocks. The fund holds the same top 10 stocks as the iShares MSCI United Kingdom ETF, in a slightly different order and with lower weightings. The ETF’s top categories are financials (19.5%), consumer staples (15.5%) and energy (14.4%).
Another ETF option is the iShares MSCI UK Small Cap ETF (BATS:EWUS). The ETF holds 231 stocks and has lower weightings to the small-cap components it holds. The ETF’s largest categories are industrials (21.5%), financials (19.8%), and consumer discretionary (14.8%).
What the experts say: British private bank and wealth management company Coutts believes that policy changes by Labour leaders are taking time to materialise.
“In terms of what this means for the UK public and our clients, we will be closely monitoring developments under Keir Starmer’s government and its potential impact on markets,” said Coutts, investment director. Fahad Kamal said.
Kamal said history shows that British elections generally do not have a “long-term impact on markets”.
The IOC said it could remain “business as usual” in the UK. It would be important to keep a close eye on the decline in inflation in the country and the possibility of an upcoming rate cut, which could improve the country’s economic growth, it added.
The UK’s housebuilding sector will benefit from the Labour Party’s victory, according to analysts at RBC Capital, as reported by CNBC. The analysts believe that the new leadership and policy commitments could usher in a “new era” for housebuilding in the country.
“In recent years, the potential of homebuilders has been limited, but in the coming years this potential should be unleashed,” RBC analysts said.
It is worth noting that the iShares MSCI United Kingdom Small Cap ETF has the real estate sector as its fourth largest weighting, at 12.3%, which could make the ETF stand out based on its policy. The EWU and FLGB ETFs have 0.8% and 1.1% exposure to the real estate sector, respectively.
Allianz also sees opportunities in UK housebuilders with the Labour Party victory and likely interest rate cuts ahead.
“We expect the rules and regulations regarding building permits to be relaxed quickly by the new government,” Allianz said.
Allianz also sees opportunities in UK-listed mining companies driven by the electrification of energy supply.
Citi has a preference for the FTSE 250 over the FTSE 100, favoring small and mid-cap companies over large caps, Investing.com reports.
“We see an improving risk balance for UK SMID caps, which have underperformed but are expected to grow faster than large caps. SMID caps are also better positioned to benefit from rate cuts and a pickup in trading,” Citi said.
Sectors such as real estate and utilities were mentioned positively by Citi in post-election comments.
Related link:
- British Pound, European Stocks Surge Ahead of UK Election Results; Bitcoin Crashes: What’s Driving Markets on Thursday?
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