The Labour party’s decisive general election win is a boon for UK-listed stocks, asset managers claim, with a range of sectors from housebuilding and construction to green energy set to benefit.
James Lowen, senior fund manager of the JOHCM UK Equity Income fund, said the political stability ushered in by Labour’s decisive majority, followed by a potential interest rate cut in August that would stimulate consumer spending, could “bring the cheapest market in the world back in from the wilderness”.
Laura Foll, portfolio manager at Janus Henderson Investors, sees Labour’s majority as a turning point, abating political concerns that have weighed on UK equities since Brexit. “A major upshot of the election result is the potential for politics to ‘tread quieter’ on the UK equity market and the broader economy.”
Labour leader and incoming prime minister Kier Starmer’s plans to reinvigorate economic growth should lead to higher sales and earnings growth for British companies, Foll continued.
“Labour’s policy for growth is centred on reforming industrial strategy and planning procedures, with the goal to tackle the fundamental issues plaguing the UK’s economy, notably the alarmingly low investment rates. Labour’s significant majority gives the means to implement this, and other, policies quickly,” she explained.
Jupiter’s Tim Service, a UK small and mid-cap equity manager, agreed that “markets and companies alike crave certainty” so “a government with a clear mandate will give companies confidence to hire people and invest in the future, while markets can better discount future company profits accurately”.
Adrian Gosden and Chris Morrison, UK equity income managers at Jupiter Asset Management, also expect the solid year-to-date performance of UK equities to continue, buoyed by a myriad of headwinds. “We are looking for a sustained rebound in the market, helped by supportive factors such as weakening inflation, a potential Bank of England rate cut, attractive valuations for UK equities and good earnings performance from UK companies,” they summarised.
The Labour party’s manifesto includes an explicit commitment to increase investment by UK pension funds in the domestic stock market.
Natalie Bell, a fund manager in Liontrust Asset Management’s Economic Advantage team, said: “After the election a number of stars should align – a stable government, interest rates falling, inflation stabilising and growth returning. This, coupled with likely policy intervention, should help turn the tide following decades of outflows.”
Sectors that should prosper under Labour
Small-caps: Ben Ritchie, head of developed market equities at abrdn, thinks the more domestically focussed small- and mid-cap stocks should do particularly well from a sentiment bounce.
“A landslide victory provides the sort of clarity and stability that equity markets need in an increasingly volatile world,” he observed. If Labour can get its pro-growth agenda right, it will be a “shot in the arm” for companies exposed to the UK economy in the FTSE 250 and FTSE Small Cap indices, he said.
European businesses: UK-listed companies operating within and trading with the EU also stand to benefit, said Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International.
“Labour is expected to pursue a more collaborative and constructive relationship with the EU, an approach that should lead to smoother trade negotiations, reduced tariffs and more predictable regulatory frameworks. By addressing Brexit-related disruptions, Labour's policies aim to foster a more integrated and efficient market environment,” he explained.
“Likewise, a stronger relationship with the EU should help repair the UK’s business investment trends – by some measures the worst in the G7.”
Housing and construction: Labour’s plans to build 300,000 new homes a year, implement planning reform and invest in planning logistics could trigger a rebound in domestic stocks “like a coiled spring”, Lowen said.
Companies that should benefit include housebuilders and building materials producers, said Mark Crouch, analyst at investment platform eToro. “UK housebuilders such as Persimmon and Barrett have suffered steep drops in share price following interest rate hikes, so they will be hoping for a reversal in fortune if and when these initiatives get underway,” he noted.
Aruna Karunathilake, an equity manager at Fidelity, said local planning departments are under-resourced and inefficient, contributing to delays in the system. Any Labour investments in that area “should alleviate builders’ concerns about planning bottlenecks impeding growth in the medium term”.
Defence: Labour has pledged to raise defence spending to 2.5% of GDP “as soon as resources allow”, from around 2% currently. BAE Systems, Babcock and Rolls Royce have already outperformed the FTSE 100 in 2024, Crouch said, and “it's likely these gains will continue”.
Renewable energy: Labour has pledged to spend £24bn on green infrastructure initiatives, to establish Great British Energy (a publicly owned clean-energy company), and to make the electricity carbon neutral by 2030.
This should be positive for renewables and electricity networks, said Ninety One’s Matt Evans, a UK sustainable equities portfolio manager.
“Other policies announced include working with the private sector to double onshore wind, triple solar power and quadruple offshore wind by 2030. Labour also plans to invest in carbon capture and storage, hydrogen and marine energy and long-term energy storage,” he explained.
Jamie Jenkins, director of policy at Royal London, said that if GB Energy enables the various actors involved in the energy transition to collaborate better, “this could just be the magic dust that is so desperately needed to accelerate investment in our country’s net zero ambition”.
Sectors that could suffer: Oil & gas, water utilities and rail
Labour's plan to increase the energy windfall tax to 78% could “spell disaster for UK oil and gas companies operating in the North Sea”, Crouch said. “The UK's largest independent oil and gas company Harbour Energy perhaps saw the writing on the wall, having since made significant investments diversifying their business away from the UK.”
Labour has been talking about nationalisation of the railways, which could impact companies such as First Group and Trainline, he added.
Karunathilake thinks the new government “could take a firmer line” with water utilities. “It could put pressure on regulators to move repeat offenders under special measures, which can include restrictions of dividend payments and executive remuneration,” he said.