The next month or so is an extremely important one for UK shares as the public gets ready to decide who should run the country. And there are some key themes investors should keep an eye on.
Right now, bookmakers are pricing the odds of Labour winning the most seats at 2:17, compared to 18:1 for the Conservatives. But whatever happens, there are some key stocks to watch.
BP and Shell
Setting up a publicly-owned energy company is a key Labour policy and funding this involves what it calls “a proper windfall tax on oil and gas giants”. Shell and BP shareholders should pay attention here.
The plan involves removing an initiative giving oil companies 91p in tax relief for every £1 invested in UK operations. And this could be a big issue for the FTSE 100 oil majors and their investors.
In theory, a rising oil price is one of the best things that could happen for Shell and BP. But if this is offset by higher taxes, then this won’t translate into the kind of returns shareholders might hope for.
Whether or not Labour’s policy is a good one is a separate issue. For investors, the important question is, how likely it is to create a serious issue for oil companies trying to return cash to their investors?
Primary Health Properties
The Conservatives are planning to invest heavily in healthcare. That could well be a positive thing for Primary Health Properties (LSE:PHP) – a real estate investment trust (REIT) that owns GP surgeries.
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The company collects the majority of its rent from the NHS. And the current government planning to build another 100 surgeries in England if it wins the election is a positive sign for future demand.
Primary Health Properties has a large amount of debt on its balance sheet, which is arguably the biggest risk to its dividend. Future investment in GP surgeries would help significantly with this.
The bookmakers are currently thinking a change might be afoot. But with Labour also intending to shorten wait times for doctor appointments, I think the stock’s worth watching carefully.
Rolls-Royce and BAE Systems
Defence is an area that hasn’t been as prominent in the election campaign this time. But it’s one investors should keep a close eye on.
NATO agreements require the UK to commit 2% of its GDP to defence spending. Both Labour and the Conservatives have promised to increase this to 2.5% after the election though.
Higher defense spending should be positive for both Rolls-Royce and BAE Systems. Both earn substantial revenues from the UK’s defence sector and growth in this area should be a benefit.
Of course, any increase in spending depends on GDP growing – or at least holding up well enough. So investors need to look carefully at overall policies as well as paying attention to the specifics.
Election opportunities
Over time, the best investment returns come from owning quality businesses. But government policies can make it much easier or harder for even the best companies to make money over time.
That’s why UK investors should pay close attention to the upcoming election. In some cases, the outcome could significantly impact investment returns going forward – positively or negatively.
