The upcoming UK general election could initiate a significant spark in the UK stock markets. The FTSE 100 and FTSE 250 are subject to polarised political campaigns: the Conservatives want to get Brexit done, and Labour is promising to nationalise publicly traded companies. Neither is guaranteed an outright majority.
A majority Conservative government would see Boris Johnson's Brexit deal begin its passage through parliament. Any progress on this could help both sterling and confidence in the markets.
If Labour does win, then there could be a second referendum with remain back on the cards. This may see markets rally. But plans to renationalise certain parts of the economy are likely to have a significant bearing on certain sectors.
We take a look at the stocks to watch if the Conservatives or Labour win – and if we’re left with another hung parliament.
If Conservatives win the UK general election
A Conservative win could see sterling rally. In this scenario, companies that predominantly do business in the UK could be set to benefit. Investors might decide to look more closely at FTSE 250 stocks.
Homebuilders like Travis Perkins [TPK] could enjoy renewed strength in sterling and more certainty over Brexit. Travis Perkins’ share price gained 22% between 6 and 16 October as a deal with the EU looked more likely.
Labour’s plan to renationalise companies, including BT [BT] and the Royal Mail [RMG], have dampened share prices. BT’s share price has struggled, down 27% this year. Yet, if the Conservatives do win, then BT’s current share price might be a bargain. Would it be a sustained rally? A series of cost-cutting initiatives could help in the long-term, and for income-seeking investors, the shares offer a decent dividend.
If Labour win the UK general election
Stocks could potentially drop across the board in the event of a Labour victory, according to Richard Hunter, head of markets at Interactive Investor. The best bet in this situation may be to trade so-called defensive stocks:
“These are companies that make stuff we'll keep on buying come what may. Think Unilever [UL], which sells big brands such as Persil and Dove soap or Reckitt Benckiser, maker of Dettol and – perhaps appropriately with the current uncertainty – Nurofen and Gaviscon.”
The press has made much of Labour's nationalisation proposals. This could see Royal Mail, rail, energy and water companies brought under public ownership. According to the Confederation of British Industry (CBI), these companies represent around 9% of Britain's economic output.
Royal Mail's share price has plummeted 22% this year. In November, the stock fell sharply on both Labour’s manifesto launch and its own admission of a potential loss in business next year.
If Labour does win the election, the share price might plummet further. The party is unclear on how it would pay for Royal Mail, whether it would take a 51% or 100% stake, or if it would even pay market price. Conversely, if the Conservatives win, then Royal Mail's share price could potentially enjoy a bump.
Hung parliament
After the hung parliament in 2017, the pound plummeted and the FTSE 100 soared. This was due to companies on the index generally making their money abroad. A weaker pound meant that profits earned overseas were worth more when converted to sterling.
If another hung parliament does occur, internationally-focused companies could see their share prices surge.
In this case, international pharmaceutical giants GlaxoSmithKline [GSK] and AstraZeneca [AZN] could prove ‘election-proof’. Both do a large amount of business outside the UK, and a slump in sterling is only going to help profits. GSK’s share price is up 17% this year and UBS recently upgraded the stock to ‘Buy’. Rival AstraZeneca is up 27% and has been making headway getting drugs approved in the US.
