Did The UK Just Become More Investable?

As Keir Starmer forms his government, Morningstar Wealth's Mark Preskett reveals which equity sectors and asset classes could benefit

Ollie Smith 5 July, 2024 | 11:56AM
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Ollie Smith: Well, the results are in, and this afternoon, we will get a new government led by Sir Keir Starmer. Here to digest what that result means for your money is Morningstar Wealth Senior Portfolio Manager, Mark Preskett.

Mark, thanks for joining me. Forgive me for being so blunt, but did the U.K. just become a lot more investable?

Mark Preskett: Probably, yes. We've seen the market reaction has been pretty muted. Sterling hasn't moved, gilt yields are stable, the equity markets have ticked up a little bit higher, and other things being equal, political stability does help investor sentiment. So, yes, I think probably it has.

OS: And in terms of foreign and direct investment, which is exactly what this kind of political conversation is all about in terms of the U.K. economy and growth, growth, growth. Do you think that we'll see some improvements there in the post-Brexit era?

MP: I mean, this is a fact that our foreign direct investment has fallen off a cliff since 2016, since the vote. It's been recovering very slowly, but we're still nowhere near the levels we had sort of 10 years ago. So, that's something that the current government needs to look at. But as an economy, I think it's a pretty positive news we've had today.

OS: Sticking with companies and therefore with U.K. equities, are there any specific sectors that perhaps stand to benefit from this result, stability included?

MP: So, when we look at the bigger picture, markets tend to sort of rise gently over the long term and the party in power hasn't shifted that needle too much. But there are a couple of sectors that we are looking at. So, one is potentially the property sector. So, there's quite strong commitments to build 300,000 houses a year. That's a commitment that the Conservatives had but never met. And reforming planning may help U.K. housebuilders that have been in the doldrums. The other area is renewable energy companies. The green energy policies are quite strong and strident in the Labour manifesto. And so, that could be a destination for capital as well.

OS: Just finally, I have to ask, I mean, there were some high-profile casualties last night. And the highest profile of them all was Liz Truss, who was given her marching orders by her now former constituents. She is accused of sort of trashing the bond market and I suppose doing some damage to the U.K.'s international standing as regard to credit rating, reliability, relationship to government and markets. How long lasting is the effect of that particular incident surrounding the mini budget?

MP: I don't think it will ever go away. I mean, ultimately, Liz Truss brought in some very aggressive unfunded tax cuts and the gilt market reacted very aggressively in a negative manner. I mean, there was a little bit of technicals around leverage and the way that pension funds have been matching liabilities there. But ultimately, they were unfunded tax cuts that the market did not like. So, the Labour government has – there isn't much room. The coffers aren't replete. So, they definitely need to be careful on their fiscal spending. But judging by the market reaction, I think, for now, they had the benefit with them.

OS: Thanks so much, Mark. That's great. For more on this election result, as we unpack what it means for your money, stay tuned to Morningstar.co.uk. Until next time, my thanks again to Mark, I've been a very sleepless Ollie Smith for Morningstar.

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Ollie Smith

Ollie Smith  is editor of Morningstar UK

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