“We could be about to enter a new dawn for UK equities” as Kier Starmer’s Labour party won a landslide victory in the UK general election 2024.
Following the announcement of Labour’s victory today (5 July), Artemis Select Fund co-manager Ed Legget said: “The relative political stability of the UK could see it become something of a safe haven for investors as other parts of the developed world move into an era of greater political uncertainty.”
Labour won 412 seats in the House of Commons while a record number of Conservative cabinet ministers lost their seat.
These include former defence secretary Grant Shapps, House of Commons leader Penny Mordaunt and education secretary Gillian Keegan.
Additionally, Legget explained as Labour now needs to honour its commitment to review the pensions landscape and consider what further steps are needed to improve pension outcomes and increase investment in UK capital markets.
“This could help reverse the relentless decline in the domestic UK equity base and in doing so reverse the relative underperformance of the UK market over the past decade,” he added.
Legget believes the election of a new government takes away another one of the objections for not investing in the UK stock market.
He said: “The Labour Party used the words ‘stability’ and ‘change’ continuously during the campaign, and businesses will certainly be looking forward to a sustained period of stability after all the turbulence of the past five years.”
Investment strategies
When it comes to investment strategies, GSB Wealth partner Yazmin Boden said: “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, Boden added.
Boden feels the FTSE 250 will benefit due to Labour’s pro-growth funding strategy which is likely to provide a favourable environment for medium-sized companies listed on the index.
Boden does predict that the anticipated stability of a Labour government following a “merry-go-round period” of Conservative prime ministerial changes is likely to be warmly welcomed by the markets.
“It’s centrist platform having a net positive effect on financial markets, and we could see a stock market uptick going into Q3.”
Closed-ended funds
Abrdn head of closed-ended funds and managing director, corporate finance, Christian Pittard has urged Labour to look at fixing the cost disclosure rules which he said are holding back the UK’s closed-end fund sector.
Pittard said: “There’s nothing to lose and everything to gain, coming at zero cost to the public purse while boosting investor confidence and investment in the UK.”
Closed-ended funds are an investment vehicle which provides capital for those large-scale real estate, specialist equity, infrastructure and renewable energy projects which “political consensus agrees, are needed to power the nation’s growth”.
“Misleading and unhelpful rules” on cost disclosure for investment trusts are “choking investment” into these productive areas and must be addressed immediately.
Pittard added: “It has impacted investor sentiment to the point where the disclosures could be adversely affecting investment decisions.”
Relationship with EU
Fidelity global head of macro and strategic asset allocation Salman Ahmed predicts that Labour will pursue a more collaborative and constructive relationship with the European Union.
Ahmed said: “By addressing Brexit-related disruptions, Labour’s policies aim to foster a more integrated and efficient market environment. UK businesses operating within and trading with the EU stand to benefit.
“Likewise, a stronger relationship with the EU should help repair the UK’s business investment trends – by some measures the worst in the G7.”
Fidelity portfolio manager Alex Wright added one area of interest is Labour’s commitment to “speeding up the UK’s transition to renewable energy”.
Wright added: “The UK election is one of the many inputs to our investment process.”
Historically stock market performs better under Tory government
From a historical viewpoint, the UK stock market has performed better under a Conservative government than a Labour one, according to research from Bowmore Asset Management.
The study found the FTSE All Share Index has grown by an annualised average of 4.9% per annum under Conservative governments since 1983, faster than the 3.9% per annum growth under Labour governments.
The FTSE All Share Index grew at its fastest annualised rate in the last 40 years during Margaret Thatcher’s second term in power from June 1983 to June 1987.
During that period, the index grew more than 2.5 times, with an average per annum growth of 38.2%.
Bowmore Asset Management chief investment officer Jonathan Webster-Smith said: “Both UK and overseas investors will be trying to work out what a change in government means for the UK stock market. Conservative governments have presided over better stock market performance on average – but only by a relatively narrowly margin.”
Little connection
However, despite all the attention the election results have received, Morningstar Wealth CIO EMEA Mike Coop said: “History tells us there’s little connection between changes in government and investment markets.”
Regardless if its is a city or high street company, the election “has little bearing on their decisions”.
Coop also advised investors to “avoid the trap of post-election speculation” by not reacting too quickly.
He said: “Moving forward, they should ensure their portfolio is robust and well-structured for the years ahead under this new Labour government and focus on keeping their investment costs low.”
