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Expert Opinion: What does a Labour government mean for your investments?

Labour has secured a historic mandate in the general election. It will now set about delivering on its manifesto and providing the policy detail critics say their campaign lacked.

The market was a little moved on Friday, reflecting the telegraphed nature of the result. That said, subtle moves in financial markets could be signs of things to come.

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We examine what investment experts think a Labour government could mean for UK investors and your investments.

UK shares

Judging by the market reaction on Friday, equity traders were encouraged by the magnitude of Labour’s victory and freedom it affords them to push through their growth agenda.

Strategists have highlighted several sectors that will enjoy tailwinds under Labour, most notably clean energy and construction.

“In terms of investment strategies, we can expect sectors related to clean energy and infrastructure to experience a boost based on Labour’s pledged policies in these areas. Other key sectors likely to benefit include banking, construction, and retail,” said Yazmin Boden, Partner of GSB Wealth.

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“Labour’s pro-growth funding strategy is likely to provide a favourable environment for medium-sized companies listed on the FTSE 250 index. The creation of a national wealth fund and support for key sectors like financial services and automotive should stimulate business investment.

“The anticipated stability of a Labour government – following a merry-go-round period of Conservative prime ministerial changes in such quick succession – is likely to be warmly welcomed by the Markets, its centrist platform having a net positive effect on financial markets, and we could see a stock market uptick going into Q3.”

Housebuilding Shares

Housebuilders were the standout performers in the very early hours of Starmer’s tenure. At the time of writing, Vistry was the FTSE 100’s top gainer, as investors piled into the builder in the hope that Labour would deliver on its pledge to build 1.5 million homes. Persimmon, Taylor Wimpey, and Barratt Developments were not far behind Vistry on Friday.

Mark Crouch, analyst at investment platform eToro, highlighted that Labour were likely to move supportive of home building than the Tories and provide the sector a much-needed boost after years of high interest rates.

Crouch explains, “Housing was a hot topic during the election campaign, and with Labour vowing to kickstart the development of thousands of additional new homes,  the pressure will be on to get the ball rolling.”

“UK house builders such as Persimmon and Barrett have suffered steep drops in share price following interest rate hikes, so they will be hoping for a reversal in fortune if and when these initiatives get underway.”

House Prices

Labour’s victory coincided with the release of the Halifax Price Index revealing the average UK prices fell 0.2% in the month to June. So while Labour promises a boost in the number of homes built, it has its work cut out to support prices explained Sarah Coles, head of personal finance, Hargreaves Lansdown.

“The property market is likely to be near the top of the government’s agenda in the coming weeks – and not just the removal van at Number 10,” Coles said.

“However, it isn’t going to make much of a difference in the short-term. House prices and sales have been tepid for most of 2024 so far, and they don’t look likely to warm up any time soon.

“The market is suffering from a dearth of demand, as higher mortgage rates and sky-high house prices have priced so many buyers out of purchases. During the election campaign, there was plenty of talk of stimulating the demand side, but not from Labour. Aside from guaranteeing mortgages for buyers with smaller deposits, it is committed to tackling the supply side of the equation instead. It promised to get stuck into reforming the property market and the planning system, as soon as its collective feet are under the desk in Number 10, but we know this is likely to be a gradual and tortuous process.”

Smaller Companies

William Tamworth, co-manager of the Artemis Smaller Companies Fund, believes Labour’s focus on growth could revive the fortunes of the UK’s smaller companies. Although Labour’s policy details are scant, Tamworth sees the change in government as a positive catalyst for UK sentiment that will ultimately filter down into the UK’s most innovative growth companies.

“The Labour manifesto was light on big promises, but it actually made a welcome commitment to stability – despite being titled ‘Change’,” William Tamworth said.

“Economic and political stability, together with an aspiration to strengthen relationships with Europe, could be an important step in rewriting the current negative narrative surrounding the UK.

“After years of outflows, a small change in sentiment could have a magnified impact on the share prices of listed smaller companies.

“Labour also appears to be supportive towards financial services, describing it as ‘one of Britain’s greatest success stories’. The party suggests it will create the conditions to support innovation and growth in the sector through backing new technology and ensuring a pro-innovation regulatory framework.”

UK Gilt Yields

Gilt yields are likely to fall as the furore around the election subsides and investors settle into a Labour government cautious about pushing through radical changes that could upset sentiment, explained Samer Hasn Market Analyst at XS.com.

“While the Labor Party had made promises to make British politics pragmatic and put rule in the hands of technocrats, in addition to “stopping the chaos” brought by the Conservatives,” Hasn said.

“I believe that these promises, if fulfilled, may provide a state of comfort in the street after the dramatic developments in recent years, thus enhancing the state of certainty, whether economic or political. This is what I also believe may push gilt yields further below, which may put pressure on the pound in turn.

“British bond yields have already declined, but the weakness of the dollar and the decline in Treasury yields appear to have moderated that negative effect and ultimately led to further gains in the pound.”

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