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We are slowly edging towards the General Election. For most people, the campaigning has been stultifyingly boring – a reflection of the fact that a Labour victory on July 4 is now considered a dead cert – and not even the release in recent days of the manifestos by the main parties has changed the nation’s mood music.
‘Bring on Sir Keir Starmer’ seems to be the consensus view, for better or worse. Although Labour has yet to come clean on all the tax hikes it will introduce, its imminent ascendency to power has not fazed the City.
Far from it.
To date, Sir Keir Starmer has said nothing to suggest that he will imperil the country’s public finances
The UK stock market, in part buoyed by slightly cheerier economic news, has taken Sir Keir in its stride. A different kettle of fish to Jeremy Corbyn, whose unfunded spending plans led Labour to a thumping defeat in 2019.
So far this year, the FTSE100 Index, comprising the largest listed companies in London, is up around a healthy 6 per cent – while the FTSE250 Index is up 3 per cent.
Baked into these increases is an expectation that Rishi will be moving out of No 10 Downing Street on July 5 – and Sir Keir moving in his clobber.
To date, Sir Keir and especially Chancellor of the Exchequer-in-waiting Rachel Reeves, have said nothing to suggest that they will imperil the country’s public finances. Maybe that will come later, once they have the keys to doors 10 and 11, but for the time being, the stock market movers and shakers remain chilled about Labour.
Jason Hollands is managing director of Bestinvest, part of wealth manager Evelyn Partners. He says: ‘The stock market is sanguine about the prospect of a stonking Labour victory.
‘This is down to a combination of Labour’s charm offensive towards the City, its pledge not to raise corporation tax for businesses and a belief in some quarters that it will be able to reset relations with the European Union.
‘A large majority in the House of Commons will also make a Labour government less vulnerable to potential backbench rebellions by Left-wing MPs.’
Some investment experts now believe that Labour could well provide the stable political backdrop for UK equities to prosper once again. American investment giant JPMorgan said as much a few days ago, concluding that the ‘market impact’ of a Labour government is likely to be ‘net positive’.
It added: ‘The current Labour party is occupying a centrist platform, and the perception of policy paralysis is set to move behind us.’
It singled out banks, housebuilders and food retailers as the potential winners.
Banks because of Labour’s promise not to hit them with extra taxes and their key role in a growing economy; housebuilders as a result of the party’s pledge to ‘get Britain building again’ and food retailers in response to Labour’s focus on the cost-of-living crisis.
But there are likely to be other business winners as Labour turns the country green, supports the High Street (bricks and mortar) and strives to get down both NHS and GP waiting times.
Post publication of Labour’s manifesto, we asked a panel of investment experts to name the stocks they believe could thrive over the next five years. Here are their selections. All can be bought via online investing platforms – and all can be held inside a tax-friendly Individual Savings Account. They are investment ideas, not recommendations.
Housebuilders – Vistry and Taylor Wimpey
A builder working for Taylor Wimpey, which has a ‘large strategic landbank’ – land available for residential development but awaiting approval
With Labour’s promise to get 1.5 million affordable homes built over the next five years by simplifying the planning system, housebuilders (and their share prices) are likely to enjoy a renaissance. Especially if falling interest rates pep up demand from housebuyers.
Susannah Streeter is head of money and markets at investment platform Hargreaves Lansdown. She says Vistry (previously known as Bovis Homes) is in a ‘good position’ to benefit as a result of its specialism in building affordable housing through partnerships with housing associations.
‘Although these partnership projects tend to be lower margin,’ she says, ‘it bodes well for Vistry if they can be approved in greater volumes through an easing of the planning laws. The need for more affordable private and social housing shows little sign of going away even if the economy doesn’t improve significantly.’
Shares in the FTSE250-listed company trade at £12.05.
Over the past five years, they have risen in value by 29 per cent – 57 per cent over the past year. The last dividend, paid in June last year, was 32p a share.
Jason Hollands likes FTSE100 builder Taylor Wimpey because of its ‘large strategic landbank’ – land available for residential development but awaiting approval.
‘Any easing of the planning laws,’ he says, ‘could deliver significant upside.’ Taylor Wimpey’s shares, currently standing at £1.49, are up 35 per cent over the past year, but 5 per cent down over five years.
The dividends paid last year totalled 9.58p a share.
Building suppliers – Travis Perkins, Wickes and Marshalls
FTSE250-listed building merchant Travis Perkins may be in a good position to benefit from Labour’s housing target
Besides housebuilders, companies that are crucial to the housing supply chain are likely to be ‘winners’ in a Labour government.
Sam North, market analyst at investment platform eToro, says: ‘Labour’s housing target of 1.5 million new homes should drive a surge in demand for building supplies and materials.’
He believes FTSE250-listed building merchant Travis Perkins is in a perfect position to benefit from this, in the process ‘driving more positive investor sentiment’.
Shares over the past year are down 7 per cent and the dividend is equivalent to an annual income of 2.2 per cent.
Dan Coatsworth, investment analyst at platform AJ Bell, likes Wickes. He says the DIY chain, part of the FTSE All-Share Index, should do well as ‘tradesmen and new homeowners buy the bits and bobs needed to spruce up properties’. Its shares are up 9 per cent over the last year. Last year’s dividend of 10.9p a share compares favourably against a current share price of £1.39.
James Igoe, head of the Manchester office of stockbroker Redmayne Bentley, also believes concrete supplier Marshalls could benefit from any building boom under Labour.
Its shares are down 54 per cent over the past five years. Last year, the FTSE250 listed company paid a dividend of 8.3p a share.
Banks – NatWest and Lloyds
Lloyds is a bellwether for the UK economy, says Susannah Streeter, head of money and markets at Hargreaves Lansdown
An improving economy and a strong housing market – underpinned by a stable Labour government – should be good news for banks and in particular high street brands Lloyds and NatWest.
‘A big Labour win that secures financial policy stability should be broadly constructive for banks,’ says Jason Hollands.
‘NatWest is my preferred pick. It’s got over the furore surrounding the debanking of Reform UK leader Nigel Farage and with a new chief executive [Paul Thwaite] and chairman [Richard Haythornthwaite] in place, is squarely focused on delivering returns for shareholders.’
Susannah Streeter also likes NatWest as well as rival Lloyds.
She says: ‘Lloyds is a bellwether for the UK economy. With easing economic winds on the horizon, there’s more potential to come from this business under a Labour administration with a mandate for change.’ Over the past year, shares in Lloyds and NatWest have risen by 19 and 17 per cent respectively. Their shares stand at 54p and £3.07 and last year’s respective dividends per share were 2.76p and 17p.
Bricks and mortar – Associated British Foods
Labour’s promised overhaul of the business rates system is designed to level up the playing field between the high street and online giants such as Amazon.
Hargreaves’ Streeter says that dependent upon how the overhaul is conducted, retail chains with ‘large footprints in towns and city centres should benefit’. Among the potential beneficiaries, she says, is cut-price retailer Primark which has steered clear of online sales.
Primark is owned by FTSE-listed Associated British Foods (ABF) whose shares are up 33 per cent over the past year. Richard Hunter, head of markets at investment platform Interactive Investor, says Primark, the jewel in ABF’s crown, could also benefit from any increase in consumer spending as the economy improves under a Labour administration. Its shares are priced at £24.82 and in the current financial year it has declared an interim dividend of 20.7p.
Green energy – The Renewables Infrastructure Group
Labour it is keen to ensure the UK uses more green energy. That means the building of more solar energy infrastructure
Although Labour has ditched a £28 billion green energy spending plan (too expensive), it is keen to ensure the UK uses more green energy. That means the building of more eco-friendly offshore wind farms, solar energy and energy storage units.
Bestinvest’s Hollands says the likely way forward is through public-private partnerships rather than more government borrowing. If so, a potential beneficiary could be FTSE250-listed The Renewables Infrastructure Group, an investment trust that invests in a portfolio of green energy projects. Although the shares have performed poorly over the past year – down 20 per cent – the trust pays an attractive quarterly dividend equivalent to a yield of 7.3 per cent.
Among its holdings is a stake in Beatrice, one of Scotland’s largest operational wind farms.
… and finally (just in case Labour goes tax grabbing) – Sage
The Sage Gateshead, seen from The Quayside in Newcastle upon Tyne
Although Labour has promised not to increase income tax, national insurance or VAT, a raft of other taxes could increase. This could prove a minefield for both households and small businesses.
Redmayne Bentley’s James Igoe says FTSE100 business software specialist Sage could benefit.
He explains: ‘If we see sweeping changes to tax under Labour, Sage would attract new business as small businesses look to navigate any new rules.’
Over the past year, the shares are up 18 per cent. The interim dividend, payable later this month, is 6.95p. This compares to 6.55p a year ago.
How the stock market prefers a big winner
Research by investment specialist Fidelity International says history indicates that the UK stock market thrives best under strong and stable governments – irrespective of whether they are Labour or Conservative.
Its analysis of the performance of the FTSE All Share Index over the past 60 years shows that it performed especially well under the Labour administration of Tony Blair (1997 to 2001) and the Conservative government of Margaret Thatcher (1983 to 1987). Their governments had majorities of 179 and 144 respectively, and during their times in power the FTSE All-Share increased by 134 and 154 per cent respectively. Adjusted for inflation, these returns boil down to 126 per cent and 134 per cent.
Tom Stevenson, investment director at Fidelity, says: ‘Over the past 60 years, we have had seven Labour governments and nine Conservative. The data does not indicate that either party is better for the UK stock market – but it does suggest that markets like governments with big majorities.’
The biggest gains were made under Labour (1974 to 1979) as the stock market recovered from the crash of 1973, and John Major’s government of 1992 to 1997 – on the cusp of the dotcom boom.
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