Utilities, Homebuilders, Healthcare & Tech firms: Stocks To Look Out For ahead of the UK General Election

Utilities

They haven’t fallen as much as some anticipated, since a lot of bad news is already priced in. For example, Severn Trent is down nearly 7% YTD. The market may also be looking to Labour to improve the service these companies offer, which could boost their attractiveness to investors down the line. 

• Severn Trent: +0.63%
• United Utilities: -2.95%

Chart 1: Severn Trent

Source: Bloomberg 

Past performance is not necessarily indicative of future results, and any person acting on this information does so entirely at their own risk.

Homebuilders

They have been battered by high interest rates, which are limiting house price growth and putting people off buying homes. There is a growing hope of an August rate cut, but interest rates are likely to remain elevated even if the BOE does cut rates later this summer. If Labour does offer big incentives for home builders in their first Budget after taking office, assuming they win the election, then the homebuilders could get a boost. But, ultimately, it's interest rate cuts, not political change that will impact the homebuilders the most, in our view. 

• Taylor Wimpey: -1.56%
• Vistry Group: -7.45%
• Barratt Developments: -4.43% 
• Redrow Developments: -4.99% 

Chart 2: Vistry Group 

Source: Bloomberg 

Past performance is not necessarily indicative of future results, and any person acting on this information does so entirely at their own risk.

Healthcare

This sector has been under pressure this month largely because of company-specific factors. While a Labour government may focus on the NHS, there are unlikely to be major boosts to NHS budgets, as the fiscal room is not there to boost UK debt levels. This could limit the impact of the election on the healthcare sector, unless a Labour government ditches its pledge to be fiscally responsible. 

• GlaxoSmithKline: -14.69% 
• AstraZeneca : +0.34% 
• Smith and Nephew: -2.48%

Chart 3: AstraZeneca

Source: Bloomberg 

Past performance is not necessarily indicative of future results, and any person acting on this information does so entirely at their own risk.

Tech firms

The US tech firms have been untouched by the prospect of political change. They seem to operate in their own bubbles, and the mega tech sector in the US appears to be immune to most international and political events. While Apple’s share price appears to be hindered by EU regulatory battles, if a Labour government takes bold action and heavily regulates AI then these stocks are worth watching. However, that may take some time, as we are still in the inference and infrastructure stage for most AI. If regulation does happen in the UK, we expect it to be a concerted effort within the G7, rather than a unilateral effort from the UK. 

• Microsoft: +10% 
• Alphabet: +6%

Chart 4: Microsoft 

Source: Bloomberg  

Past performance is not necessarily indicative of future results, and any person acting on this information does so entirely at their own risk.

Overall, while the FTSE 100 has held up close to its record highs and remains above 8,000 as we lead up to the election, when you dig deeper into the overall performance of UK indices, more than half of FTSE 100 stocks have fallen in the past month. This is unlikely to be down to election risk in the UK, instead it is down to growth fears and concerns that central banks may not cut interest rates quickly enough. It may also be due to the growing levels of concentration risk in global financial markets. For example, the S&P 500’s reliance on only a handful of stocks is getting worse, not better as we progress through the year. Most of these are tech stocks, since the UK has very few listed large tech giants, it’s hard for the UK markets to perform well vs. US markets in the current environment.