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The stocks most exposed to the UK general election

Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
A combination of pictures created in London on November 18, 2019 shows Britain's Prime Minister and Conservative Party leader Boris Johnson (R) and Britain's main opposition Labour Party leader Jeremy Corbyn (L) giving speeches during their general election campaigns. - Britain will go to the polls on December 12, 2019 to vote in a pre-Christmas general election. (Photo by Ben STANSALL / AFP) (Photo by BEN STANSALL/AFP via Getty Images)
Britain's Prime Minister and Conservative Party leader Boris Johnson, right, and Britain's main opposition Labour Party leader Jeremy Corbyn, left. Photo: BEN STANSALL/AFP via Getty Images

Banks like Lloyds (LLOY.L) and utility stocks such as Pennon (PNN.L) are among the stocks most at the whim of the election results, according to analysts and investors.

Britain goes to the polls on December 12. The outcome is likely to drive the prices of UK assets either higher or lower depending on who gets into power.

Early signs point to a victory for the Conservative Party, which investors see as good for the economy and progress on Brexit. US investment bank Jefferies said UK stocks “will re-rate in the event of an outright Tory victory” — analyst speak for a share price bump.

Names to watch include Lloyds Bank (LLOY.L), which gets 100% of its revenue from the UK according to JP Morgan, and Royal Bank of Scotland (RBS.L), which gets 91% from the UK and is still part state-owned.

“If the election result is positive for the Conservatives Party and we get some certainty, then you say see an uplift in banks mechanically because it’s probably the quickest way to get into the UK domestically,” said Leigh Himsworth, portfolio manager of the Fidelity UK Opportunities Fund.

The pound is expected to rise on a Conservative victory and Himsworth said companies with sterling-denominated earnings or UK-based assets would see their share prices rise as a result.

“If you’re coming in from Hong Kong or the US or whatever, all of a sudden those assets or profits are worth more by that difference basically,” he said. “Focus on sterling and what that implies for some of the companies.”

House builders, property firms, supermarkets, and retailers are key sectors to look at. British Land (BLAND.L) and house builder Persimmon (PSN.L) both get 100% of revenue from the UK, according to JP Morgan, as do supermarkets Sainsbury’s (SBRY.L) and Morrisons (MRW.L).

Conversely, domestic stocks will fall if Labour comes to power. UBS Wealth Management flagged “risks of higher corporate tax rates, greater regulation, and potential nationalisation.” The pound would also likely fall, creating an inverse effect on sterling-denominated earnings and assets.

“Utilities, Telecoms and Banks get crushed,” Jefferies said. “Most at risk include Royal Mail, water utilities, RBS, BT and UK gamblers.”

Himworth noted that utility stocks have been trading at a discount on nationalisation fears but have recently recovered slightly as polls have pointed to a likely Tory victory.

“The Corbyn risk seems to have diminished a little bit,” he said.

If we get a hung parliament, Himsworth expects investors to turn to defensive stocks and overseas earners such as “the oil stocks, mining stocks, the Unilevers of this world.”

Whatever happens, the result will only call the tune for stock markets until the end of January, when the UK is set to officially leave the EU and move on to the next stage of negotiations.

“I don’t think it’s going to be all necessarily plain sailing post January so what I’m tempted to say is: yes, buy the UK assets into this election but if they rise sharply, lock in profits,” Himsworth said. “Batten down the hatches, so to speak.”