Stocks to watch as UK general election kicks off

The UK is holding a general election on 12 December. All the political parties are keen to return discussion to domestic policies after years of neglect because of Brexit, but the UK’s proposed departure from the EU will continue to dominate the debate.

Read more about the best Brexit-proof investments

Still, whichever party wins (or parties, if it results in a hung parliament) will not only believe they have won a mandate from the public on Brexit, but the right to govern for five years. Domestic policies have largely been on the backburner since 2016, but it is hard to imagine how vital policies on everything from policing to the national health service (NHS) can be ignored for another five years. The next government will have a momentous challenge on their hands, with everything from immigration to international trade to taxation up for review.

The general view of financial markets is pretty simple: the Conservatives represent the status quo and are traditionally the party that champions business, while Labour’s socialist-leaning view poses a huge threat to capitalists. However, the current state of play suggests the two main parties will have to reach out to others if they are to secure a majority. It is therefore likely that one or many smaller parties could have a bigger role to play in domestic policy. This means markets need to consider how a government propped up by a party such as the Lib Dems or the Brexit Party could influence domestic policy (the latter has no other policies outside of Brexit).

Read more about all you need to know about the next general election

Get ready for party manifestos

The starting gun has been fired on the election, but we are still waiting for official manifestos to be released. These outline the official key policies of each party, form the basis of their campaigns and detail what they want to implement if they are victorious.

There is no set date for manifestos to be released, but you would like to think they are ready and waiting considering all the political parties have been preparing for an election for months. However, some media reports suggest manifestos won’t start to be released until the week of November 18 – about four weeks until the public votes.

Still, most parties have already started to shout about major policies they intend to adopt. Investors need to be aware of how this election – and whatever government it results in – will impact their portfolios.

Sectors and stocks to watch during the general election

Below is a list of key sectors to watch during the campaign that outlines what the major political parties may try to do if they are elected. It also details what stocks could be affected by any major policy changes:

1. Tax
2. Energy, utilities and climate change
3. Infrastructure, transport and broadband
4. Housing
5. NHS and healthcare
6. Education
7. Policing and prisons
8. Immigration
9. Welfare
10. Gambling

Tax

The Conservatives are in favour of a lower tax system and, historically, the party has been a favourite among higher earners. The party also wants to lower corporation tax after it takes the UK out of the EU, which could attract new businesses from around the world.

Labour is eager to introduce radical reforms to the tax system and wants wealthier citizens to pay considerably more toward the public purse. It is not clear what tax brackets Corbyn wants to attack, but those earning over £80,000 per year are likely to be affected and those earning more will certainly be in the party’s crosshairs. It wants to tax the wealthy to inject hundreds of billions into the country. It also wants to force more foreign-based companies to pay their fair share of tax, and stop companies like Amazon from profiteering from UK consumers while paying little in return.

Energy, utilities and climate change

There are different views regarding how the UK should power itself going forward. Although the Conservatives have helped support the rollout of solar and wind farms, it has also backed more controversial energy sources such as fracking and nuclear power. Labour is more ambitious when it comes to increasing the country’s exposure to renewable energy, with a pledge to generate 60% of UK power from renewables by 2030, and has said it would stop fracking if elected. Labour has also pledged to take National Grid and water utilities back into public ownership, which could threaten firms like Severn Trent, United Utilities and Pennon Group.

Renewable energy stocks and frackers are also worth watching, particularly the smaller AIM-listed stocks. These include the likes of renewable energy supplier Good Energy, as well as the many small stocks with interests in UK fracking sites like UK Oil & Gas, Egdon Resources, Angus Energy and IGAS.

Infrastructure, transport and broadband

If new houses are built and areas like education and healthcare are to improve, then the UK will need to invest in more infrastructure: building more schools and hospitals, roads, and developing infrastructure for new technologies such as 5G. The fate of some existing infrastructure projects is also up in the air, such as High Speed 2 (HS2).

Read more about what you need to know about investing in 5G

The troubles of big infrastructure firms like Carillion have opened up a debate over the role of private companies building public infrastructure, so the role of stocks like Balfour Beatty, Kier Group and Mitie will be questioned during the next election campaign. BT Group, as the operator of OpenReach, could also come under fire if a Labour government takes charge.

Companies that operate rail franchises are under threat if Labour get in as the party has said it wants to take railways back into public ownership. This could have a dramatic effect on companies like Go-Ahead Group, Stagecoach Group and National Express.

Housing

The severe shortfall in the amount of new housing being built has been acknowledged by all political parties, with estimates suggesting the UK needs to build anywhere between 170,000 to 300,000 new homes each year to keep up with demand. Last year, around 149,000 new homes were built, broadly flat from the year before. Markets should also expect a debate over the shortage in social housing, the quality of new build properties, and rules that have allowed former office and retail outlets to be converted into accommodation without planning permission. Any changes to the Help-to-Buy and other government-subsidised schemes, which have provided a huge boost to the earnings of housebuilders, would also cause disruption to the industry.

Most of the UK’s new homes are built by a handful of companies, including Persimmon, Barratt, Redrow, Taylor Wimpey and Berkeley Group. It is also worth looking at other stocks in the supply chain, such as building materials group Breedon, as their performance is linked to the amount of new construction work underway.

Read more on how Brexit will impact housebuilder shares

NHS and healthcare

Supporting the NHS is regarded as an easy win for politicians and raising funding will be among the top priorities for most political parties. The NHS has been chronically underfunded for years. Some could argue the NHS receives adequate funding but is mismanaged and overspends. The fact is that the NHS has made billions in savings and is still struggling to cope with growing demand. Just under half of all NHS trusts were in the red during the 2018/19 financial year.

The Conservatives have unveiled a £13 billion ‘Health Infrastructure Plan’ and promised to build 40 new hospitals in England. Labour has said it wants to boost investment for social care and create a publicly-owned pharma company that can develop cheaper drugs.

Labour has already promised to protect the NHS from privatisation and claimed the Conservatives want to open the doors to the health service to US companies in any post-Brexit trade deal, which Labour has denied. Still, although it is generally considered as a highly unpopular policy, mass underfunding has led some to question whether there is more space for private companies after Brexit.

There are several stocks that supply goods or services to the NHS. Spire Healthcare is one of the largest providers to the NHS. Convatec Group, which provides the likes of colostomy bags and catheters, and Smith & Nephew, which supplies goods like wound dressings, could also be impacted by any changes in NHS funding. It is also worth watching firms that let out properties to NHS organisations, such as Primary Health Properties and Assura.

Education

Spending on education is highly likely to rise after this election as most parties have recognised it is underfunded. The Conservatives are in favour of academies, grammar schools and technical education colleges, and have already said they will pump extra money into the system. Labour has a more radical proposal to create a national education service (NES) that would provide ‘cradle-to-grave learning that is free at the point of use’. It is also looking to scrap tuition fees for university students.

Pearson makes over a fifth of its revenue from the UK, providing the likes of student assessments and qualifications. Wey Education is another stock that could benefit from increased funding as it operates a fee-paying online secondary school and provides education services to other public and private organisations. University student accommodation provider Unite Group could also be one to watch.

Policing and prisons

Overall funding for the police rose by over 30% between 2000/01 to 2010/11, but has fallen by 19% since (taking inflation into account). Forces have had to become more financially independent by raising more of their own money to plug a 30% cut in direct funding from the government over the past eight years. The general mood among the public is that the cuts to policing have been too severe and the effects are starting to be seen on the streets, primarily demonstrated by the rising numbers of stabbings or the emergence of County Lines drug dealing.

Capita provides ‘mission critical’ software and products to UK police forces, including core communication lines used by officers. It also runs critical communication lines for the Ministry of Justice and has contracts running the likes of asylum seeker centres. G4S operates several prisons. Another stock to watch is Petards, which provides automatic number plate recognition (ANPR) technology to UK police forces.

Immigration

The debate over how the UK should manage immigration into the country still rages on as Brexit looms. Increasing immigration from EU states was one of the primary arguments for the Leave campaign with a promise that the country will have more control over its borders post-Brexit. The Conservatives are regarded as more cautious when it comes to future immigration policy and is touted to push for an ‘Australian-style’ points-based system once the UK leaves the EU. Meanwhile, Labour has promised to unwind conservative immigration policy, close down detention centres such as Yarl’s Wood, and install a ‘fairer’ immigration policy.

It is worth watching stocks and industries that rely heavily on immigrant workers, such as the agricultural, hospitality and retail sectors. There are also stocks that provide immigration services such as Serco, which operates secure detention services.

Welfare

The UK’s welfare system has dramatically changed since the introduction of Universal Credit, which bundles separate payments for the likes of housing and child benefit into one payment and gives people more control over their benefits. However, its implementation has been far from smooth and drawn criticism. While the Conservatives traditionally focus on getting as many people into work as possible, Labour and other left-leaning parties have more generous systems in mind.

The Conservatives have said it intends to raise the National Living Wage to £10.50 in the next five years, while Labour is targeting £10. However, the latter also wants to strengthen workers’ rights and crack down on zero-hour contracts – which could impact firms like Uber.

Changes in welfare can have a dramatic effect on the economy: it can dictate what a large proportion of the UK public have to spend, influence employment levels and affect other important economical metrics such as wage growth. One group that was hit hard by the introduction of Universal Credit was landlords, who were left with tenants that could no longer cover their rent under the new system.

Gambling

The gambling industry is still counting the cost of the crackdown on fixed-odds betting terminals (FOBTs) after the Conservatives cut the maximum stake per play on gaming machines from £100 to just £2. While the Conservatives are unlikely to take further action should they stay in power it should not be ruled out, and any change in government is likely to lead to further restrictions being imposed. These may include a further cut to the maximum stake for FOBTs, which have become the main revenue driver for many bookmakers. Labour has vowed to introduce tougher limits for online gambling.

Investors should keep GVC Holdings (which owns numerous brands including Ladbrokes Coral), William Hill and Paddy Power in mind.

Read more about the pros and cons of Brexit