The results of UK general election are now in: a landslide victory for the Labour Party and total humiliation for the Conservatives, who have haemorrhaged seats across the electoral board, most notably to Reform and the Lib Dems.
Sir Keir Starmer will now become the first Labour prime minister since Gordon Brown (14 years ago) to form a new government and begin implementing his party manifesto pledges: keep spending tight, control sky-high debt, boost homebuilding, upgrade the UK’s crumbling infrastructure and sustain economic growth. Starmer’s purportedly pro-business stance will also see him commit to creating wealth and formulating a new industrial strategy for the country.
Cynical UK investors may well be beginning to wonder what might go wrong with the economy and the markets under a new Labour government: historically, Labour governments have been associated with higher taxes and greater regulation. Indeed, the UK stock market of the 1970s had to grapple with challenges that sound almost ridiculous in today’s world.
However, the next Labour government is unlikely to repeat the mistakes of its predecessors. And it will most likely avoid the recent blunders made by the Conservatives (most notably the absurd unfunded tax cuts of the short-lived Truss government).
That said, taxes are likely to rise if Labour does get to implement its election manifesto. While the new Prime Minister and the Chancellor of the Exchequer have indicated that tax on workers’ income will not go up, taxes on wealth will most likely be raised. We will have to wait until Rachel Reeves – the most likely future incumbent of number 11 Downing Street – presents her first budget.
The chances are that she will run the most “pro-growth” Treasury in UK history by returning to the centre ground of politics, and striking a balance between workers’ needs and business interests. Labour will be particularly keen to avoid exposing itself to any accusations of recklessness.
Whatever Labour ends up doing – whether it be introducing VAT on private school fees, making changes to pensions tax and inheritance tax, or increasing CGT – careful planning will be all the more essential so as to maximise available opportunities and avoid any potential pitfalls.
As far as the UK stock market is concerned, we see opportunities – and lots of them. The UK is a safe, liquid developed market and inflation has fallen dramatically (back down to the Bank of England’s 2% target level). Meanwhile, the country has returned to economic growth after a mild recession. But most importantly, Labour’s victory and the significant working majority it now has at its disposal have gone a long way to dispelling any political uncertainty.
The UK market currently looks calm and attractively valued – particularly compared with a number of other developed countries. And regarding investment opportunities, housebuilders, financial services, REITS, defence and infrastructure stocks all look quite appealing under a Labour government. Indeed, many UK fund managers are very excited about the plethora of opportunities and numerous cheap stocks and sectors available.
Our position regarding the UK stock market therefore remains unchanged: we are positive. And as for our portfolio strategies, we have exposure to Artemis UK Select Fund, Polar Capital UK Value Opportunities Fund, Gresham House UK Multi-Cap Income Fund, iShares UK Dividend UCITS ETF, Evenlode Income and the GAM UK Equity Income Fund, all of which we believe will fare well under a Labour government.
When all is said and done, of significantly more relevance for investors in a truly globalised world will be the outcome of the US presidential election in November and all the ways in which artificial intelligence will reshape our daily lives over the next decade.
Interestingly, today does not just mark the end of 14 years of Conservative government: it is also the 30th anniversary of Amazon becoming a US listed company. Over the past three decades, it has become the 5th largest global company by market cap behind Microsoft, Apple, NVIDIA and Alphabet (Google). An amazing corporate story.
The Conservative party’s evisceration at the polls will indeed go down in history and unnerve some investors and clients. But from an investment perspective, our global exposure looks set to create some exciting and (hopefully) profitable outcomes over the next decade. Remember: “invest for the long haul. Don't get too greedy and don't get too scared”.
If you have any concerns, feel free to contact us. Your wealth manager will be more than happy to provide personalised recommendations.
