Corporate UK braces for the election certainty of uncertainty

It has been an animated start to the UK general election campaign. This week saw the leaders of seven political parties engage in the only live debate, the first time so many parties were involved in British politics. More than 100 executives blasted Labour in a letter to the Daily Telegraph, while celebrities, such as Broadchurch actor David Tennant, have stepped up attacks on the Tories. Even Jeremy Paxman returned to the fray, with an aggressive mauling of both Prime Minister David Cameron and Labour party leader Ed Miliband.

But, after filtering out the noise in a particularly lively week since Mr Cameron dissolved Parliament on Monday, how will the election affect companies and their stocks? Before the opening campaign shots were even fired, retail investors had started pulling out of UK equity funds on a scale not seen since January 2008, partly because of election uncertainty.

Chris White, head of UK equity at Premier Asset Management, says: "This is one of the most uncertain elections in a generation. Markets and investors don't like uncertainty. It's that simple and why we are seeing some retail investors pulling out of UK equity funds. But this is only week one of the campaign. There is going to be more uncertainty."

Despite the big outflow of money from UK funds in February, Mr White and other investors worry that markets have not priced in the potential volatility and turbulence that could ensue following the May election. BlackRock, the world's largest private investment group, warned bluntly on Wednesday: "A soothing outcome for markets is hard to imagine."

Specifically, some investors say worries largely centre on six sectors that could be hit hard in a new post-election environment. These industries include energy, banking, outsourcing, housebuilders, transport and tobacco.

Concerns are rising over Labour plans for a 20-month freeze on energy bills. Some of this disquiet is already priced in. Since Labour announced the plans at its party conference in September 2013, shares in Centrica, the UK energy provider, have tumbled close to 40 per cent. Although politics is only one factor in the falling share price, some investors say the Labour plan has certainly not helped. Shares of other listed energy providers, such as SSE, EDF and Eon, have come under pressure of late as well. Labour has also hinted at windfall profit taxes that could hit these groups further.

Conservative plans for a referendum on the UK leaving the EU may weigh on the country's big banks - Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Standard Chartered - as this potentially threatens London's role as the main European financial centre.

There are also concerns over what a new government might do on the banking levy, which has been increased nine times since it was introduced in 2011. Investors worry that the levy will be increased regardless of who wins in May. Some have even urged groups such as StanChart to consider moving domicile because of the increasing burden of the tax. Labour proposals to cap the market share of the big banks, which would include Spanish lender Santander's UK arm, could hurt stock prices too.

Investors warn that the UK's biggest outsourcers G4S, Serco, Atos and Capita, with an estimated £4bn of government contracts, face risks and possible share price falls. This is because of worries over Labour potentially forcing them to pay all workers more than the minimum wage, or the so-called living wage, in exchange for government contracts. It is difficult to gauge if these concerns have been priced in. Investors in Serco in particular have had a torrid time in the past two years with the share price dropping 75 per cent since July 2013, although lossmaking deals and poor delivery of some public service contracts is largely responsible for this.

Despite some warnings over this sector, investors are more hopeful that these stocks will deliver strong returns regardless of who wins the election, particularly if the economy continues to grow. Schemes, such as "help to buy", could be extended and expectations of increased housing supply should be good for business. Shares in the four largest housebuilders Barratt, Berkeley, Persimmon and Taylor Wimpey have seen some impressive gains in the past few years. Shares in Barratt, for example, have jumped more than 600 per cent since 2010, helped by an improving economy and sentiment. But there are clouds on the horizon, too. Labour's mansion tax, particularly bad for London builders, and possible taxation of land "hoarded" by developers are negatives for the industry. Labour leader Ed Miliband's "use it or lose it" warning to developers in reference to the land they own but are not building on could tarnish share performance.

Every rail franchise in Britain is due to expire between 2015 and 2020, which provides Labour with the opportunity to partly renationalise the network by allowing government backed bidders in the rail franchising process. Labour argues that this will benefit commuters and make fare prices more competitive, but some investors warn it will also undermine private groups such as CrossCountry Trains and First Great Western. Labour has also signalled that it wants a regulated bus system with fares and routes set by a transport operator rather than private operators. Although this might benefit customers, it could have a negative impact on the big five bus operators - Arriva, FirstGroup, Go-Ahead, National Express and Stagecoach. Stagecoach has warned that Labour plans to allow local authorities greater powers to improve bus services could push up fares. Additionally, bus operators face the possibility of subsidy cuts, although no decisions have been made on this by the main parties.

Groups such as British American Tobacco and Imperial Tobacco Group may face some share price pressure in the event of a tobacco levy. Although this levy is likely to be passed on to customers, some investors say this will probably undermine stock performance. The Treasury launched a consultation on a tobacco levy in December and extended it for more informal negotiations in the Budget. However, overall, a tobacco levy could have a positive long-term impact on the economy and shares in general if it did encourage people to quit smoking. About 20 per cent of adults smoke in the UK and the total cost to society is £12.9bn a year, say the Treasury. This includes treating diseases, the loss of productivity and smoking related sick days.

The tabular content relating to this article is not available to view. Apologies in advance for the inconvenience caused.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation