Credit Suisse cautious towards some homebuilders, asset managers should Labour win
Strategists at Credit Suisse left their year-end target for the Footsie unchanged, even as they cautioned clients to be mindful of the risks posed by a potential Labour victory in the next elections.
Berkeley Group Holdings (The)
4,650.00p
11:45 23/04/24
British Land Company
391.20p
11:49 23/04/24
Financial Services
14,396.47
11:44 23/04/24
Foxtons Group
53.40p
11:49 23/04/24
FTSE 100
8,071.76
11:50 23/04/24
FTSE 250
19,737.21
11:50 23/04/24
FTSE 350
4,435.14
11:50 23/04/24
FTSE All-Share
4,389.06
11:50 23/04/24
FTSE Small Cap
6,437.63
11:50 23/04/24
Household Goods & Home Construction
12,555.35
11:49 23/04/24
Jupiter Fund Management
77.60p
11:49 23/04/24
Real Estate Investment & Services
2,183.54
11:39 23/04/24
Real Estate Investment Trusts
2,260.42
11:50 23/04/24
Yes, that's correct, a victory by Labour in the next elections.
A coalition between the Conservatives and DUP would give the government a working majority of six or seven votes, Andrew Garthwaite and his team said.
Yet at an average of four by-elections a year and assuming the Tories lost two seats each year, the government might last three years.
While admitting that the "unexpected" was always possible, they believed another election within a year was a strong possibility.
Should May run then Labour victory had a "reasonable" chance of winning, Credit Suisse said. A different Conservative leader on the other hand might be able to turn the tide - but it wouldn't be easy.
Several of May's policies had estranged voters over 65, who usually vote Conservative, while an ample majority of under 25s voted Remain.
Yet with two thirds of UKIP votes going to the Tories and 40 committed Brexiteers in the party, there appeared to be limited prospects for a softer Brexit.
On the other hand, the risk of a negotiating accident - a hard Brexit without a transitional deal - had risen, the strategists said, but remained unlikely due to the sheer amount of adminsitrative requirements necessary for a hard Brexit.
Despite all of the above, Credit Suisse economists were still forecasting UK GDP growth of 1.4% in 2017 and with 76% of the Footsie's earnings coming from overseas and 18% from commodities, they left their year-end target unchanged at 7,500 points.
However, the possibility of a Labour government is negative for small-caps, they said, due to risks around corporate tax rates, more regulation, higher wages and higher rates.
Similarly, they remained 'underweight' UK regulated utilities due to regulatory risk and that they might be nationalised.
The threat of increased taxes also led them to underweight London and South East-exposed homebuilders and UK office REITs. Retail-focused asset managers were also at risk from a sharp fall in tax benefits if Labour gained power.
Sterling's direction would be the "critical" driver, they explained, with a weaker currency favouring pharma and consumer staples and hurting retailing, banks and real estate.
"Thus we are cautious of names such as Berkeley Group, Foxtons, British Land, Jupiter."