If Labor wins the July 4 election, as polls currently predict, some industries, such as housing, construction and health care, will see an influx of investment, while others, such as transport and water, will face change. The winning party is notorious for only partially keeping its election promises, especially when it comes to spending, but we can still expect to see changes in the stock market.
UK Rail Industry
The Labour Party’s transport policy platform is Moving Britain forward Labour has stressed that it will reform Britain’s troubled rail network from day one. It plans to set up a publicly owned British Rail company to take over passenger rail contracts currently held by private companies when they expire, a process it expects to complete during its first term in power.
The idea is not as radical as it may seem: over the past 13 years, several struggling train companies have been merged into government-controlled operators of last resort, including TransPennine Express in 2023 and London North Eastern Railway before that.
The UK rail network is largely owned by private equity and indirectly by foreign governments including the Italian and German governments, French Railways and Canadian pension funds. There are only two listed companies: Firstgroup and the Canadian pension funds. [LON:FGP] Digital ticket platform Trainline [LON:TRN].
Labour’s plans to renationalise the railways initially hit Firstgroup’s share price, but it has begun to recover once it became clear that it could still be years before the company is affected. Firstgroup runs the Great Western Railway and the South Western Railway. The government could let the current rail franchises operate for their core periods for the next 12 months, then extend their contracts for another 12 months while it deals with those that are performing worse than GWR and SWR.
As for Trainline’s shares, there is no strong reason for the company to come under pressure. Trainline is widely used, especially by younger travellers, and the only threat is that the government will build a better web-based sales platform, which Labor has already rejected in conversations with journalists.
Housing and Construction Stocks
The housing sector had already begun to recover before Labour’s recent promises to invest in affordable housing and infrastructure, and this recovery has more to do with expectations of falling inflation and lower interest rates than any policy promises.
Still, some construction and building materials companies would certainly benefit from a change of government, as Labor has big plans for construction – which is good news for Morgan Sindall. [LON:MGNS] (24% increase in the past six months), Keir Group [LON:KIE] (30% increase in the past 6 months) and Costain [LON:COST] (32% increase in the past six months).
For infrastructure companies like Balfour Beatty, it’s a different story. [LON:BBY] – up 8% in six months – splashy government contracts can become poisoned chalices if funding is suddenly pulled, as is the case with the planned H2S.More than £3bn of Balfour Beatty’s revenue comes from UK construction, 95% of which is in the public sector, making it highly sensitive to shifting political winds.
Healthcare stocks
Labour said it would rebuild the NHS after years of underfunding, but also stressed that it would use “spare private sector capacity” to reduce NHS waiting lists – which will be good news for Spire Healthcare Group, the UK’s largest network of independent private hospitals. [LON:SPI]It’s up more than 100% in the past five years. Medical equipment maker Smith & Nephew PLC [ LON:SN.] It will also be an indirect beneficiary of increased government spending in the UK health sector.
Water resources
From the outside, it looked as though the Labour Party might begin the process of nationalising the water companies, as it had done with the railways, following a series of scandals over sewerage and overcharging of water, but the party was divided on whether to go for it, given the high costs involved.
Labour’s cautious approach to Thames Water is a good example. The water company is £18.3 billion in debt and faces nationalisation unless rescued by private investors. Labour is in no rush to rescue Thames Water, meaning that water companies are unlikely to face the same process as the railways in the first half of a Labour government. Pennon and three other water companies are listed on the London Stock Exchange. [LON:PNN]United Utilities [LON:UU] Severn Trent [SVT]Both have been declining over the past six months. Labour may choose to put the issue on the “back burner”.
