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What a new Labour government means for UK investment
- Labour’s huge victory in Thursday’s UK election will see it take control of the country after more than a decade of leadership from the Conservative Party.
- The move comes at a time when economic uncertainty still prevails in the country, with the effects of higher inflation still being felt and interest rates remaining high.
- Stock markets and real estate and real estate are most likely to be affected, while bond and currency markets are unlikely to be as badly affected, experts said.
Overview of Bishopsgate in the City of London, the capital’s financial district. The UK economy is said to have seen faster growth than initially estimated by early 2024.
Vuk Valcic | Sopa Images | Lightrocket | Getty Images
Britain’s Labour Party won a landslide victory in Thursday’s election and is now poised to take over power from the Conservatives after 14 years as economic uncertainty continues to grip the country.
The UK’s FTSE 100 index rose 0.4% as investors reacted to the election results on Friday, while the British pound made only modest gains. The FTSE 350 index of household goods and housebuilding rose about 1%. Looking at individual stocks within the sector, Khaki shares rose 2.9%, while Taylor Wimpey, Barratt Developments It is Bell Path rose by about 2%.
Interest rates remain elevated in the UK as the central bank battles high inflation following the Covid-19 slowdown. The two main political parties ran on different economic and financial manifestos during the election campaign, which is likely to have different consequences for the investment environment.
Labour’s pledge, for example, to raise taxes on the pay paid to private equity fund managers has raised some eyebrows and led to questions about what this might mean more broadly.
Speaking to CNBC, a selection of experts assessed the potential impact that the change in government could have on UK investment.
The arrival of a new Labour government has not yet moved markets much, but analysts expect UK assets to become more attractive going forward.
In a note on Friday, analysts at Jefferies said that despite concerns raised by the strong showing of the right-wing Reform Party UK, a Labour victory in the UK election would help make the country appear “relatively stable”.
This, combined with regulatory reform, “could increase the attractiveness of UK assets,” Jefferies analysts wrote in a research note.
James McManus, chief investment officer at Nutmeg, meanwhile, told CNBC that for the most part, “markets don’t really care” about elections. “Historical data shows us that elections and their outcomes rarely move markets when the expected outcome is delivered.”
Susannah Streeter, head of money and markets at Hargreaves Lansdown, broadly echoed McManus’s comments in a note published this week, but added that there could be some impact on the economy.
“A widely anticipated Labour victory in the UK could usher in an era of greater stability for the UK… which should help bolster investor sentiment towards the UK,” she said.
In recent years, the UK political landscape has been characterised by frequent changes of leadership, which has sometimes led to market turmoil — especially under the former PM Liz Truss’s brief tenure as Prime Minister.
Some sectors — and therefore specific stocks — could also be affected, Streeter noted. Pressure could be added to the utilities sector, as Labour plans to increase fines for water companies that are already being burdened by high costs. Meanwhile, the party’s pledge to increase the country’s defense budget could see UK aerospace stocks benefit from additional spending on new technology and equipment.
Plans from all parties to build more homes could impact the housing and real estate sector, Richard Donnell, executive director of research at Zoopla, told CNBC.
“Investors would welcome this focus on housebuilding,” he said. “What investors want is more focus on housing and delivering the homes the nation needs and leveraging as much private investment as possible to create an attractive investment for further capital and support the ambitions of the new Government.”
Some housebuilding stocks could also see a boost from Labour’s plans to build new, affordable homes, Hargreaves Lansdown noted.
Broader economic developments will also be a factor, according to Nutmeg’s McManus. As interest rates are expected to fall, mortgage rates will also fall, which could prompt more people to buy or sell homes, he said, adding that this could also have knock-on effects for other businesses such as furniture and DIY stores.
Aynsley Lammin, equity analyst at Investec, said Labour’s plan to restore mandatory housebuilding targets would be a “quick win” for the sector, which should boost planning and supply.
RBC’s head of European capital goods research told CNBC’s Silvia Amaro on Friday that he agreed the homebuilding sector was likely to be a big beneficiary of Labor’s landslide victory.
“It’s the bottom line, great for housebuilders, great for the wider building materials sector, bricks,” said Mark Fielding, pointing to two motivating factors. “Two big factors: firstly, a return to mandatory housebuilding targets, supporting 1.5 million new homes over the next five years, which would be very positive, and secondly, hopes for planning reforms to do that.”
This in turn will allow for faster planning processes and potentially further intervention from central government to push through more House approvals, according to Fielding, who noted that otherwise investors’ focus will now be on Labour’s ability to deliver broader economic growth.
“Ultimately, UK bank stocks are one of the biggest indicators of UK economic growth,” he said.
Strategists and economists predict the British pound will not be heavily impacted by the election.
If the results go as expected, attention will quickly shift away from the UK election, Shreyas Gopal, a strategist, and Sanjay Raja, a senior economist at Deutsche Bank, said in a note published on Wednesday.
“For EUR/GBP, this then means turning attention to the election on the other side of the channel [in France]and then the upcoming UK data in mid-July which will determine whether the BoE will be able to pull the trigger for a first rate cut in early August,” they said.
In the long term, there are also no “major risks” to the pound under a Labour government, Francesco Pesole, currency strategist at ING, told CNBC. Possible renegotiations of Brexit agreements would, at the very least, be more pro-growth under Labor, and the risks of government overspending are also low, he explained.
But the pound could still be headed for a rough patch, Pesole suggested.
“We see the pound depreciating against the euro over the next 24 months mainly because of our view of larger cuts from the Bank of England compared to the ECB,” he said. Higher taxes in the U.K. could also weaken its currency — but that would likely happen regardless of the election outcome, according to Pesole.
Bond markets have so far not appeared reactive to potential new Labour policies, Hargreaves Lansdown’s Streeter said in a second note published earlier this week.
During the campaign, Labor economic spokeswoman Rachel Reeves suggested there could be changes to government borrowing rules in an effort to boost growth and investment. But the bond market’s focus appears to be elsewhere, Streeter said.
“So far, this does not appear to have disrupted debt markets, with bond investors appearing more sensitive to interest rate speculation than to the investment plans of a new government,” she said.
—CNBC’s Ryan Browne and Ruxandra Iordache contributed to this article.
The spotlight next week will shift somewhat to the Federal Reserve’s second-quarter earnings season and monetary policy. Market watchers will be treated to results from several major names, including Dow 30 components Goldman Sachs (GS), UnitedHealth (UNH), Johnson & Johnson (JNJ) and American Express (AXP), along with streaming giant Netflix (NFLX).
The Fed will still attract some attention as investors will be eager to hear from a packed lineup of central bank speakers just before the policy meeting lockout period.
In terms of the economic calendar, after fifteen days of labor market and inflation indicators, activity data will gain momentum in the form of the latest retail sales and industrial production reports.
Earnings Highlight: Monday, July 15 – Goldman Sachs (GS) and BlackRock (Black). See the full earnings calendar.
Earnings Highlight: Tuesday, July 16 – UnitedHealth (UNH), Bank of America (BAC), Progressive (PGR), Morgan Stanley (IN), PNC Financial (PNC) and JB Hunt Transport (JBHT). See the full earnings calendar.
Earnings Highlight: Wednesday, July 17 – Johnson & Johnson (JNJ), US Bancorp (USB), Morgan Children (KMI), United Airlines (UAL) and Ally Financial (ALLY). See the full earnings calendar.
Earnings Highlight: Thursday, July 18 – Netflix (NFLX), Abbott Laboratories (ABT), Black stone (BX), Domino’s pizza (ZDP) and Taiwan Semiconductor Manufacturing (TSM). See the full earnings calendar.
Earnings Highlight: Friday, July 19 – American Express (AXP), Halliburton (THANKS) and Travelers (VRT (return to recoverable value)) See the full earnings calendar.
IPO Observation: Hospital and healthcare clinic operator Ardent Health Partners (TARDT), insurance service provider Twfg (TWFG) and the biotechnology company Lirum Therapeutics (LRTX) are expected to price their IPOs and begin trading next week. The analyst quiet period ends at Rectitude (RECT) to free up analysts to publish ratings.
Police cars outside the residence of Thomas Matthew Crooks, the suspected shooter at a Trump rally on Saturday, investigate the area in Pennsylvania. Following the incident, one rally attendee was killed, two rally attendees are in critical condition and Donald Trump suffered a non-fatal gunshot wound. The shooter is dead after being shot dead by the United States Secret Service. (Photo by Kyle Mazza/Anadolu via Getty Images)
Investors will initially favor traditional safe-haven assets and may lean toward trades more closely tied to former President Donald Trump’s chances of winning the White House after he survived an assassination attempt, according to market watchers.
“There will undoubtedly be some protectionist or safe-haven flows into Asia early this morning,” said Nick Twidale, chief market analyst at ATFX Global Markets. “I suspect gold could test all-time highs, we’ll see the yen being bought and the dollar, and flows into Treasuries as well.”
Early market commentary suggested Trump’s shooting at a rally in Pennsylvania on Saturday could also prompt traders to increase his likelihood of success in the November election. His support for looser fiscal policy and higher tariffs is generally seen as likely to benefit the dollar and weaken Treasuries.
An indicator of market sentiment heading into the weekend: Bitcoin surged above $60,000, likely reflecting Trump’s pro-crypto stance.
Other assets positively linked to the so-called Trump trade include stocks of energy companies, private prisons, credit card companies and health insurers.
Traders will also be closely watching market measures of expected volatility on Monday, such as those in the tariff-sensitive Chinese yuan and Mexican peso, which have begun to price in the U.S. vote.
Trump said he was shot in the right ear after a shooting at his rally. His campaign said in a statement that he was “fine” after the incident, which prompted him to rush off the stage.
“Currencies will be the first major market on Monday in Asia to react to the weekend’s shots. There’s potential for extra volatility, and getting a clear reading could be especially difficult because liquidity will be hurt by Japan’s national holiday,” said Garfield Reynolds, Asia team leader for Bloomberg Markets Live.
Strategists had already expected a volatile run-up to the election, particularly as Democrats are still agonizing over President Joe Biden’s candidacy after his poor performance in last month’s debate raised questions about his age. Investors were also grappling with the possibility that the election could end in a drawn-out dispute or political violence.
But there is little precedent for events like those in Pennsylvania. When President Ronald Reagan was shot four decades ago, the stock market plunged before closing early. The next day, March 31, 1981, the S&P 500 rose more than 1% and benchmark 10-year Treasury yields fell 9 basis points to 13.13%, according to data compiled by Bloomberg.
Bond investors should pay particular attention as the attack is likely to boost Trump’s election chances and ultimately lead to concerns about the fiscal outlook, according to Marko Papic, chief strategist at California-based BCA Research Inc.
“The bond market must at some point become aware of President Trump’s greater chances of winning the White House than any of his rivals,” Papic wrote. “And I continue to believe that as his chances increase, so too must the likelihood of a bond market revolt.”
Kyle Rodda, senior financial markets analyst at Capital.com, said he was seeing client flows into Bitcoin and gold following the shooting.
“This news marks a turning point in American policy norms,” he said. “For markets, it means safe-haven trades, but more tilted toward non-traditional safe-havens.”
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Jio Financial share price: Should you buy this Reliance group stock on Monday ahead of Q1 FY2024 results?
Q1 2024 Results: Jio Financial Share Price will be in focus on Monday as the Reliance Group company has a fixed board meeting on July 15, 2024 to consider and approve the company’s unaudited standalone and consolidated financial results. Trust Group company informed about the Q1 2024 Results date on Wednesday last week via an exchange filing. According to stock market experts, Jio Financial Services Limited is poised to deliver impressive Q1 results for FY25 on solid operating income. They have forecast a healthy QoQ PAT for the company in Q1 FY25.
Jio Financial Services News
Speaking on the Jio Financial Services Q1 2024 results, Manish Chowdhury, Head of Research, StoxBox, said, “We believe Jio Financial Services is poised to deliver impressive results in Q1FY25 aided by its operating income, which is likely to show robust growth driven by strong investment income, which in turn should lead to healthy PAT growth on a sequential basis. Jio Financial Services continues to make strategic moves such as launching digital products and expanding its ecosystem, with a clear focus on future growth. The company has announced plans to introduce products for lending against stocks and mutual funds, leveraging Jio’s large user base, which could be a significant growth driver in the coming quarters.”
“Furthermore, with the NBFC receiving RBI approval to become a primary investment company, Jio Financial Services is well-positioned to unlock value from its investments. Overall, we expect the company to report robust numbers in the upcoming quarter,” the StoxBox expert added.
Jio Financial Stock Target Price
Speaking about the technical outlook of Jio Financial share price, Ganesh Dongre, Senior Manager, Technical Research at Anand Rathi, said, “Jio Financial Services share price is poised to make a fresh high at the ₹260 apiece level. If the stock breaks above this mark, the Reliance Group stock could make a fresh high by touching the ₹290-₹295 zone. Hence, those with Jio Finance stock in their portfolio are advised to stick to the script by keeping a stop loss at ₹205. If the stock breaks above ₹260 decisively, then one can upgrade the stop loss at ₹240 for the near-term target of ₹295.”
On the advice to new buyers regarding Jio Financial stock, Ganesh Dongre said, “New buyers are advised to wait for the breakout. Once the stock breaks above ₹260, one can buy this Reliance Group stock at the short term target of ₹295, keeping a stop loss of ₹240 apiece.”
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage firms, and not of Mint. Investors are advised to consult with certified experts before making any investment decisions.
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