Energy
Energy suppliers became a focal point during election campaigning, with both major political parties talking about introducing price caps on energy bills. OMGI’s Richard Buxton thinks things could get tougher for energy suppliers and other utilities, as domestic energy costs continue to be a source of political wrangling.
ONES TO WATCH
The impact on some other sectors of the market remains to be seen, depending on what kind of government is formed and what its priorities are.
Banks
RBC Capital Markets: “Assuming the outcome of a Conservative/DUP minority government we would expect a fairly benign impact on the UK banks sector. The Conservative manifesto included no real change to bank-related policy. The direct impact is more related to FX – HSBC, Standard Chartered and Barclays are beneficiaries of sterling weakness given dollar related earnings/dividends.
“One other key issue for the UK banks is the direction of interest rates, and one could argue that the uncertainty created by a hung Parliament could mean that rates remain lower for longer, so that pressure on net interest margin is not alleviated any time soon.
“Labour policies on the UK banks are very different to Conservative – such as a consultation on the break-up of RBS and higher bank levies and a stamp duty reserve tax and we do not see a likelihood of these even if the narrowness of the coalition majority may necessitate cross party deals.”
OMGI’s Richard Buxton suggest improvement in bank stocks will be deferred until interest rates rise towards more normalised, pre-crisis levels.
Healthcare
RBS Capital Markets: “With a hung parliament likely leading to more moderate policy changes we see a potential benefit to UK healthcare spend, but the UK is a small fraction of the global market so not as relevant as say the US. Corporation tax rates change, albeit some don’t pay tax…, but of those that do higher tax is negative for Consort, Clinigen, ConvaTec, Dechra and Vectura as each have a larger UK operation than Abcam, BTG and Indivior (smaller negative).”
Utilities
John Wyn-Evans, head of investment strategy at Investec Wealth & Investment: “There is quite a sharp divergence in performance between overseas earners (up) and domestic cyclicals (down). There is also a nice bounce for the utility shares that were under threat of renationalisation.
“We view a Conservative/DUP coalition as thematically more favourable, as the threat of Labour introducing more punitive policies has for now receded. This could lead to a relative outperformance for the UK water and to a lesser degree, the Big Six energy suppliers.
