Property companies, utilities, and financial firms would be most at risk of underperforming if a Labour government came to power, according to a new note from a leading City of London strategist.
Fears have been rising in the City about the growing chances of a hard-left government coming to power in the UK under Labour leader Jeremy Corbyn. The Labour party is currently gaining in the polls against the ruling Conservative Party and Corbyn is 6/1 to be the next prime minister, according to Oddschecker.com.
Corbyn has pledged to renationalise industries, suggested requisitioning empty properties to ease housing issues, and drawn up plans for extensive borrowing and spending. While these policies are popular with many voters, the proposals have alarmed much of the business and investment communities.
On Thursday, Simon French, the chief economist at stockbroker Panmure Gordon, sent a note to clients titled: “How to position for hard Labour.” It looked at which sectors and stocks are likely to underperform if Corbyn becomes prime minister.
The analysis found that real estate stocks are the most at risk of underperforming if Labour comes to power, followed by utilities and financials.
“Our ‘at risk’ portfolio is heavily real estate-specific in composition,” French wrote. “This is in keeping with our concerns over ambiguous property rights as one of the major risks of a Corbyn government.”
Basic material companies and tech businesses are the most immune to political changes.
French’s verdicts are based on a five-part model he created that takes into account factors like expected changes in the pound exchange rate (GBPUSD=X, GBPEUR=X) and UK growth, as well as political statements from Labour.
French analysed over 600 publicly-listed companies that are each worth over £100m using the model. Each was awarded up to five “red flags” based on his model.
“Of the 602 firms in our sample just one has red flags across all five of our variables,” he wrote. “By contrast 143 firms receive no flags at all — in part because the concentration of political risk exists amongst a relatively narrow basket of firms.”
French identified 20 companies that had either four or five red-flags, meaning they are most at risk from a Labour government. They are:
Workspace Group (5 red flags) (WKP.L)
Great Portland Estates (4) (GPOR.L)
Palace Capital (4) (PCA.L)
Land Securities (4) (LAND.L)
Berkeley Group (4) (BKG.L)
Shaftesbury (4) (SHB.L)
Amigo Holdings (4) (AMGO.L)
Paragon Banking (4) (PAG.L)
Brewin Dolphin (4) (BRW.L)
Metro Bank (4) (MTRO.L)
Newriver Reit (4) (NRR.L)
McCarthy & Stone (4) (MCS.L)
Hollywood Bowl Group (4) (BOWL.L)
Town Centre Securities (4) (TOWN.L)
Countrywide (4) (CWD.L)
Pendragon (4) (PDG.L)
Standard Life Aberdeen (4) (SLA.L)
William Hill (4) (WMH.L)
Hammerson (4) (HMSO.L)
Capital & Counties (4) (CAPC.L)
French said the list was not a recommendation to clients to sell these stocks.
“Our top-down analysis of risk and opportunities is designed to frame portfolio selection rather than generate a buy/sell list,” he wrote.
Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.