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Since 1970, UK shares have collectively fallen 2% in the month following a Labor victory, according to the Wall Street giant. J.Morgan.
However, the bank said on June 10 that this time could be different if Labor wins the July 4 general election. “We believe that this time, a Labor victory will likely be seen as positive for UK markets.. The current Labor Party has a much more centrist political agenda..”
The party's policies would probably be “modestly pro-growth, but crucially with a likely cautious fiscal approach”.
The note names sectors of the stock market that could benefit from a Labor majority, assuming that happens, which seems likely but is not yet guaranteed.
the sectors
In short, JP Morgan believes that supermarkets, banks and home builders could benefit.
He says continuing to focus on the cost of living crisis would be a positive for food retailers. The banking sector would benefit from “political stability”, especially as the Labor Party has no plans to heavily tax bank profits.
Meanwhile, focusing on affordable housing, unlocking land for development and reforms to the planning system can improve prospects for housebuilders.
In short, JP Morgan favors mid-cap. FTSE 250 index, which is more linked to the UK economy than to the international index FTSE 100.
An action to consider
So given this, what's a stock worth considering?
Well, FTSE 250 housebuilder Vistry Cluster (LSE:VTY) has just been promoted to the blue-chip index, where it will rank among the largest developers such as Barratt Developments and Taylor Wimpey.
The stock has defied pessimism surrounding higher interest rates and the housing market. It's up 58% in the last six months!
Despite this, the valuation does not seem particularly exaggerated: 13.8 times expected 2024 earnings.
Last year the company announced it would focus on selling affordable homes to organizations such as local authorities and housing associations rather than private owner-occupiers on the open market.
This is rather a “high growth and few assets” operating model, focused on high-quality partnerships.
These include private equity in the build-to-rent space. Currently, residential rents in the UK are rising at the fastest rate ever recorded. A growing population and a chronic shortage of available housing should keep rents high.
Dividend forecasts also look attractive.
| YEAR | DIVIDEND PER SHARE | DIVIDEND YIELD |
|---|---|---|
| 2024 | 51.3p | 4.1% |
| 2025 | 70.6p | 5.7% |
| 2026 | 80.2p | 6.4% |
Of course, higher interest rates remain a challenge for all homebuilders in the future. We don't know when rates will start to drop. So it's worth keeping in mind.
Encouragingly, however, Vistry announced in May that it is on track to achieve more than 18,000 completions in FY24, an increase of more than 10% from FY23.
As things stand, I don't have any house builders in my portfolio. Vistry stock could be one to consider.
Long-term investment
Investors should not buy stocks based solely on what they believe will be the outcome of an election.
Instead, it is worth focusing more on a company's long-term fundamentals, such as its financial health, competitive position, growth prospects and the quality of its management.
This provides a more reliable basis 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 long-term returns.
