Investors Pour Into U.K. Markets as Election Result Calms Brexit Jitters
December 13 2019 - 7:25AM
Dow Jones News
By Anna Isaac
A decisive victory for Prime Minister Boris Johnson's
Conservative Party in the British election sent investors
scrambling to buy U.K. stocks and pushed the pound to its highest
level against the dollar since May 2018.
The FTSE 100 index, which tracks the U.K.'s largest companies,
rose 1.9%, marking its biggest gain since February. The rally was
led by gains in stocks such as house builder Taylor Wimpey PLC and
Royal Bank of Scotland Group PLC. The British pound earlier climbed
to its highest level since May 2018 before easing slightly to trade
at $1.3380 on Friday.
Investors are betting on a significant flow of capital back into
the U.K. as Mr. Johnson's resounding electoral win sets the stage
for lawmakers to trigger a long-delayed split with the European
Union. Britain now appears poised to leave the EU by the end of
next month, removing a major uncertainty that has weighed on U.K.
businesses and investors' sentiment for more than three years.
"The U.K. market looks very attractive to international
investors," in part because the pound is still below historic
highs, said Emma Newton, portfolio manager at Newton Investment
Management. "It's still relatively cheap and now some of the
political uncertainty has been lifted."
Mr. Johnson's win and the easing of uncertainty could lead to a
moderate rise in investments by businesses, according to investors
and economists. But they also cautioned that the spending would
remain limited unless there was swift action to secure the
long-term future trade relationship with the EU. Mr. Johnson has
said he would secure a new trade deal with the bloc by the end of
2020, when the U.K.'s period of transition out of the EU is up.
Still, the British pound remains below levels it hit before the
Brexit referendum in June 2016, when it traded at $1.4807, adding
to U.K. assets' attractiveness for foreign investors, Ms. Newton
said.
The FTSE 250 equity index, which tracks smaller companies that
are more focused on domestic operations, advanced 4.3%, the most in
over a year. Finance companies such as Virgin Money UK PLC and
OneSavings PLC led that rally.
Utility companies, which had come under pressure in the run-up
to Thursday's election as investors took note of the Labour Party's
proposal to nationalize some industries, were also among the day's
biggest beneficiaries.
Electricity and gas supplier National Grid PLC, water company
Severn Trent, telecommunications provider BT Group, and energy
supplier Centrica PLC all posted gains.
"The things that are leading the charge are exactly those stocks
that were leading the fall after the Brexit referendum," said
Daniel McDonagh, head of European portfolios at Nedgroup
Investments. "We've been surprised by the immediate relief shown in
utilities stocks."
Retailers such as Associated British Foods PLC and apparel-chain
Next PLC, as well as companies in the construction business such as
Persimmon PLC and Barratt Developments PLC rose.
"Those companies that rely on imports will also see a boost from
a strong pound and also from improved sentiment among U.K.
consumers as political uncertainty eases," said Edward Park, deputy
chief investment officer at BrooksMacdonald. He pointed to the
retail sector as well as the home builders, which import
materials.
Another even bigger concern for investors would be the terms of
a trade deal with the EU for the services sector, which accounts
for a lion's share of the U.K. economy, according to Victoria Shaw,
an economist at Investec.
"One of the biggest things will be to watch what regulatory and
other barriers U.K. services companies will face when trading with
the EU," Ms. Shaw said. "That's the major unknown for the U.K.
outlook."
Caitlin Ostroff contributed to this article
Write to Anna Isaac at anna.isaac@wsj.com
(END) Dow Jones Newswires
December 13, 2019 07:10 ET (12:10 GMT)
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