Labour winning the general election would be positive for UK stocks, says JP Morgan

Labour winning the general election would be positive for UK stocks, says JP Morgan

British union jack flag and Parliament house at city of Westminster in the background

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Since 1970, UK stocks have collectively fallen by 2% in the month after a Labour victory, according to Wall Street giant JP Morgan.

However, the bank said on 10 June that this time could be different if Labour wins the general election on 4 July. “We think that this time, a Labour win will likely be seen as a positive for the UK markets. The current Labour party has a much more centrist policy agenda.”

The party’s policies would likely be “modestly pro-growth, but crucially with a likely cautious fiscal approach”.

The note named stock market sectors that could benefit from a Labour majority, assuming that happens, which looks likely but still isn’t guaranteed.

The sectors

In a nutshell, JP Morgan reckons supermarkets, banks, and housebuilders could benefit.

It says a continued focus on the cost-of-living crisis would be positive for food retailers. The banking sector would benefit from “policy stability”, especially as Labour has no plans to heavily tax bank profits.

Meanwhile, a focus on affordable housing, unlocking land for development and planning system reforms may boost the prospects for housebuilders.

On balance, JP Morgan favours the mid-cap FTSE 250 index, which is more linked to the UK economy, over the international FTSE 100.

A stock to consider

Given this then, what is a stock that might be worth considering?

Well, FTSE 250 homebuilder Vistry Group (LSE:VTY) has just been promoted to the blue-chip index, where it will sit among larger developers like Barratt Developments and Taylor Wimpey.

The stock has defied the doom and gloom surrounding higher interest rates and the housing market. It’s up 58% over the last six months!

Despite this, the valuation doesn’t look particularly stretched at 13.8 times 2024’s forecast earnings.

Last year, the firm announced that its focus will be selling affordable homes to organisations like local authorities and housing associations rather than private owner-occupiers on the open market.

This is more of a “high-growth, asset-light” operating model, centred around high-quality partnerships.

These include private equity in the build-to-rent space. Currently, UK residential rents are rising at their fastest pace on record. A rising population and chronic shortage of available housing should keep rents high.

The dividend forecasts look attractive too.

2024 51.3p 4.1%
2025 70.6p 5.7%
2026 80.2p 6.4%

Of course, higher interest rates are still a challenge for all housebuilders going forward. We don’t know when rates will start dropping. So that’s worth bearing in mind.

Encouragingly though, Vistry announced in May that it’s on track to deliver more than 18,000 completions in FY24, an increase of more than 10% on FY23.

As things stand, I don’t have any housebuilders in my portfolio. Vistry stock might be one to consider.

Long-term investing

Investors shouldn’t buy stocks solely on what they believe the outcome of an election will be.

Instead, it pays to focus more on a firm’s long-term fundamentals, such as its financial health, competitive position, growth prospects, and quality of management.

This provides a more reliable foundation for making investment decisions rather than worrying about who is in Downing Street or the White House.

Companies with strong fundamentals offer investors greater potential for better returns over the long run.

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