General Election 2017 market analysis - is a Labour government bad for stocks?

Would a Labour win really be bad news for the FTSE? Stock markets are not that political but there is a widely-held belief that investors prefer a Conservative government to a Labour one. That is a deep-rooted sentiment based on the Tories being viewed as more pro-business than their rivals.


Looking at the Labour manifesto this time, there are clear parallels with policies of the pre-Blair years. As markets have largely decided that the Conservatives will win, they seem to be ignoring the likelihood of a Labour victory. Certainly the polls back up that thesis but we are seeing Labour narrow the gap – investors need to understand what might happen with Jeremy Corbyn as prime minister.

Here’s our look at the Labour manifesto and what it might mean for certain stocks:

Policy: Raise corporation tax to 26%

Companies affected: ALL

Just about every listed company would be hit if a Labour government chose to reverse recent cuts to the amount firms pay in tax. The Tories are in the process of cutting the headline corporate tax rate. Quite simply, under Labour, company profits would be – all else being equal – fall. Shareholders would get less, valuations would have to fall.

Policy: Ban fracking

Companies affected: Egdon Resources (EDR), Royal Dutch Shell (RDSA), BP (BP)

Onshore drillers like Egdon would be first in the firing line from the ban on fracking. But we’d also suspect that FTSE 100 giants Shell and BP would also be knocked as Labour is a lot cooler on supporting the oil & gas industry than the Conservatives.

Labour’s manifesto says it will “safeguard the offshore oil and gas industry”, while the Conservatives pledge to build on the “unprecedented” level of support already on offer. All quite vague but sector (judging by the donations at least), would clearly favour a Tory win come June 9th.

Policy: Energy market partially returned to public ownership; at least one public-owned energy company in each region, central government to control the grid and distribution

Companies affected: Centrica (CNA), SSE (SSE), National Grid (NG)

A move to return the energy market to public ownership could ultimately see providers having to sell off parts of their business; shed market share to new rivals or even be completely nationalised. Combined with a cap on energy prices (something the Tories are also planning), it’s hard to see these companies profiting from a Labour government.

Policy: Introduce an ‘excessive pay levy’ on companies with large numbers of staff on high pay.

Companies affected: HSBC (HSBA), Barclays (BARC), Lloyds (LLOY), RBS (RBS)

Banks may be most exposed to this kind of policy. Quite what it might do their share price is a guess – but it would almost certainly have an effect on these businesses. Coupled with Brexit and higher income taxes, it may encourage bankers to relocate to elsewhere in Europe to avoid the levies.

Policy: Raise minimum wage to come in line with Living Wage, end ‘zero hours’ contracts, introduce 4 new public holidays, extend paternity leave

Companies affected: Tesco (TSCO), Sainsbury’s (SBRY), Morrison (MRW), Mitie (MTO), Whitbread (WTB)

Any company with a large headcount of low-paid workers – think supermarkets, retailers, coffee and pub chains - are all in for a bigger wage bill and other associated staffing costs rising if Labour get in.

Policy: Complete HS2, link with northern Crossrail, invest £250bn in infrastructure over ten years

Companies affected: Costain (COST), Morgan Sindall (MGNS)

Completing HS2 will benefit those companies already awarded contracts and looking to win more work. Adding to this, a massive infrastructure splurge could definitely benefit the engineering and construction sector.

Policy: Build one million new homes by the end of next parliament.

Companies affected: Taylor Wimpey (TW), Barratt Developments (BDEV), Berkeley Group Holdings (BKG)

The Tories have kept housebuilders buoyant for years with Help to Buy but could it take a Labour government to unleash a building boom? Certainly if it stuck to the manifesto pledge and was prepared to borrow money to fund new builds there could be additional bounce for housebuilders. What’s not clear, however, is how much sentiment in the overall economy – higher corporate taxes for instance – might rock the sector. The one million homes figure is eye-catching but investors need to look at the whole picture.

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