(News Bulletin 247) – Market specialists have identified the sectors that will benefit from the program supported by the new Labour government recently elected in the United Kingdom.

A few days before France, the United Kingdom discovered the new face of its Parliament. The Labour Party obtained a large majority at the end of the legislative elections, for which the British were called to vote on Thursday, July 4.

According to the almost complete results revealed by AFP, Labour won 412 seats, well beyond the threshold of 326 for an absolute majority in the House of Commons. For the first time since 2010, Labour will therefore lead the country, putting an end to 14 years of successive governments led by the Conservative Party.

For the management company Janus Henderson, “this victory brings a feeling of political stability, a desire to revitalize the economy and to ease trade barriers with the European Union (EU)”.

The Labour victory should therefore, according to Janus Henderson, minimise the influence of politics on the British stock market. Managers Laura Foll and Andrew Jones point out that British stocks have depreciated relative to their foreign counterparts since the Brexit vote in 2016, due to political uncertainty.

According to the management company, investors have plenty of scope to “refocus on the positive characteristics of many UK listed companies”

Reducing trade barriers with the EU

The question of the United Kingdom’s return to the European Union was almost absent from a 2024 campaign that was heavily dominated by concerns about purchasing power and the public health system.

Labour leader Keir Starmer, now Prime Minister, had ruled out rejoining the single market and customs union, saying such a move would cause “upheaval”. However, he said he wanted to improve relations with the European Union “in trade, research and development, defence and security, and education”, reports The Guardian.

Janus Handerson also points out that Labour had clearly placed emphasis on boosting UK economic growth, in order to “close the loop” by improving the funding of public services while remaining within its borrowing commitments.

According to the fund manager, stronger economic growth in the UK would be “clearly positive” for stocks that are heavily exposed to the domestic market as it would create the potential for sales and earnings growth.

Small and mid-caps traditionally exposed to their domestic market are “abnormally cheap” for UBS and “are benefiting from the appreciation of the pound sterling”.

“While Labour’s proposed supply-side reforms are likely to take time to impact the economy, the new government may already inherit a better domestic backdrop, with the UK economy having already emerged from the limited recession it experienced in the second half of 2023,” Handerson continued.

A reconstruction of the United Kingdom

The management company also points out that housing appears to be one of the first priority projects of the new government, in particular the desire to increase the number of housing units built each year.

UBS points out in a note published this Friday that the Labour Party has set a target of 1.5 million homes over five years (compared to 1.05 million over the last five years).

“Already, leading real estate indicators imply an increase of around 5% in prices, which homebuilders are factoring in with a price-to-earnings ratio just below normal levels,” the Swiss bank reports.

Among the big winners are building materials companies, which could benefit from a significant recovery in demand, which would have an impact on profits, says Janus Handerson.

In this configuration, UBS bank is buying property developer Taylor Wimpey and housebuilder Bellway. The Swiss consultancy is also thinking about brick manufacturers, which can also benefit from an increased supply of housing and cites the Ibstock group.

UBS believes that UK retail could benefit from Labour taking power. “Real wage growth could accelerate even more under a Labour government (and sterling could be stronger). Both help support what already looks like a compelling story,” the Swiss bank said.

UBS has identified shares in Kingfisher, the British owner of the Castorama and Brico Dépôt chains, and the discount chain B&M, if Labour were to implement a “significant increase in the minimum wage” and adopt support measures for workers in the “gig economy”.