The Labour Party: Stock Market, Investment Opportunities, and More
In a historic vote on 4th July, the Labour Party, led by Keir Starmer (Starmer), was elected to lead the government for the first time in fourteen years. With a landslide victory, the Party defeated the Conservatives in the general election, gaining 412 seats to their 121.
With hopes that the new government would ensure a period of economic stability, stock markets responded favorably to this change. The Financial Times Stock Exchange (FTSE) 250 midcap index, which measures the strength of the United Kingdom’s economy, rose by 1.8 percent in the aftermath of the election, to its highest since 2022. Similarly, the FTSE 100 blue-chip index, which includes the 100 largest companies in the United Kingdom, was up by 0.2 percent, and the FTSE 350 household goods and homes construction index was up by 1 percent. The British pound held steadily against the U.S. dollar and the euro. Financial analysts attributed this to the fact that the Labour Party’s win was highly anticipated. Although government spending will be slightly higher under the Labour Party than under the Conservative government, as per the former’s party manifesto, the stock market’s stability suggests that investors welcome this change. Certain industries will likely experience a boost in the coming months following this transition. The Labour Party’s pledges to increase spending in the property and housing industries, as well as green initiatives, provide potential opportunities for investors.
Housing
Construction and infrastructure have received substantial attention, as housing was an essential component of the Labour Party’s election campaign, pledging to alleviate the housing problem caused by high inflation and a lack of new homes. The Labour Party has promised to build 1.5 million homes over the next five years. , and plans to rely on the private sector to achieve this ambitious target. In her first speech as Chancellor of the Exchequer, Rachel Reeves (Reeves) emphasized that “nowhere is decisive reform needed more urgently than in the case of our planning system” and that the government will undertake “a new growth-focused approach to it [planning system],” also “including restoring mandatory housing targets.”
The Party’s housing plan was reflected in the stock market after the election, as shares in the United Kingdom’s house-building companies rose by around 2.5 percent. Specifically, shares of the country’s largest house–builders, such as Persimmon plc, Taylor Wimpey plc, and the Vistry Group, climbed between 3.2 and 4 percent in the wake of the election results. Consequently, investors and businesses should anticipate positive returns from the house-building industry, as more houses are expected to be constructed in the coming years. Furthermore, favorable effects on the furniture manufacturing, construction, and building supply industries might be expected from the growth of the house–building sector. Since more individuals will be inclined to purchase or sell homes and take out mortgages, the financial sector can potentially see a rise in investment in mortgage-backed securities and real estate investment trusts. Developers, including MJ Gleeson plc and Bellway plc, and furniture retailers, such as Dunelm Group plc, will likely be affected by this dynamic and can potentially see a growth uptick in their share price.
Energy
In the same speech, Reeves also said that the Labour Party would end the “absurd ban on new onshore wind farms,” a policy put in place by former prime minister David Cameron in 2015, which made it difficult for new wind turbines to be approved. In contrast, the Labour Party pledges to invest in clean energy sources, which will ultimately have a positive environmental impact on the country and lower electricity bills. The Party will aim to double the country’s onshore wind energy by 2030, which was welcomed by trade associations for wind power, as well as wave and tidal power industries. Since the new government plans to seek a closer and friendlier relationship with the European Union, it is reasonable to assume it will align its renewable energy policy with the institution’s energy transition plan.
Institutional investors have also expressed excitement over the new policy change, according to a survey from Alpha Real conducted among insurers and pension funds. As the survey revealed, 85 percent of investors will increase their investments in renewable energy technologies, with nine out of ten investors stating that they have considered putting their money in onshore wind farms in the next five years. Therefore, funds such as Greencoat UK Wind plc, the Renewables Energy Infrastructure Group, and the JLEN Environmental Assets Group, which all have onshore wind farms in the United Kingdom, will likely see an increase in demand. As the Labour Party continues to develop its action plans, it can be expected that the government may provide financial incentives, such as subsidies and tax credits, to encourage the development and construction of onshore wind farms.
More Stringent Approach to Taxation and Industries at Risk
On the other hand, Starmer vowed to raise GBP 7.35 billion (USD 9.4 billion) by 2028/2029 to fund public services through stringent regulatory measures, which include closing tax loopholes for private equity investors and nondomiciled individuals. Specifically, the Labour Party’s manifesto cites that private equity is the “only industry where performance-related pay is treated as capital gains.” Therefore, profits or commission-related pay awarded to private equity and hedge fund managers will be treated as income, with the tax rate spiking from 28 to 45 percent. Since the United Kingdom is a financial hub for the private equity industry, it can safely be presumed that many professionals are non-domiciled. The fallout from this measure can be costly for the industry, as tax-sensitive professionals and companies may be more inclined to leave the country if the measure is enacted and move to jurisdictions with more favorable tax regimes.
These regulatory measures appear unavoidable, as the Labour Party aims to hold companies accountable, with Reeves saying that the government will not “play fast and loose with the public finances.” Importantly, it should be noted that thus far, the Labour Party does not have plans to increase income taxes or introduce a wealth tax. Nevertheless, businesses and professionals operating in the financial services sector and high-net-worth individuals should prepare to be affected by these regulatory measures. Besides the above, the future regulatory outlook is currently unknown, but the overall impression is that the Labour Party will adopt a much tougher tax policy than the Conservatives.
With the Labour Party’s victory, house-building and renewable energy are expected to flourish due to anticipated increased investment.
Conclusion
The Labour Party’s manifesto cites that strengthening the United Kingdom’s renewable energy will partly be achieved by increasing taxes on the oil and gas sector and ending the issuing of new licenses in the North Sea basin. As one of the world’s largest non-OPEC producing basins, the North Sea has most of Europe’s and the United Kingdom’s oil reserves. In addition, the Labour Party plans to increase the windfall tax, meaning a higher tax rate on the profits of energy producers by 3 percent. This decision has caused concern among investors operating in the industry, with David Whitehouse, the Chief Executive Officer of Offshore Energies UK, an offshore trade association, notably outlining that the Labour Party’s plans will “threaten jobs and undermine the decarbonization of the UK economy.” While these matters represent an important issue for the oil and gas sector, it should be noted that the Labour Party’s plans to create new opportunities in the renewable energy industry should offset the economic impact brought on by discontinuing the issuing of new licenses.
With the Labour Party’s victory, house-building and renewable energy have been flagged as two industries expected to flourish due to anticipated increased investment. On the other hand, financial industry professionals should expect more rigid taxation policies, as the Party is expected to assume a tougher stance on private equity and hedge fund industries. With the promise to double the United Kingdom’s onshore wind energy output and increase investments in the renewable energy industry, potential repercussions are expected for the oil and gas sector as well.
However, party manifestos, policy pledges, and political promises are commonly subject to change, partly due to domestic or international emergencies, such as public health crises, as seen in the case of the COVID-19 pandemic, or security-related matters, such as the conflict between Ukraine and Russia. Conversely, although the victory of the Labour Party has highlighted the general policy course that the United Kingdom will follow in the next years, there is a gap between the Party’s campaign promises and what it can realistically deliver in government. Notably, since the Labour Party inherited an above-average budget deficit, it can be expected that the pace of spending will slow down and that no concrete policy and fiscal achievements will be visible this year. Therefore, investors and businesses need to proceed with caution until they have seen how the new government decides to unfold its ambitious plans.
French Legislative Elections 2024: Internal, Regional, and Geopolitical Implications
On 7 July 2024, the results of the second round of legislative elections in France marked a significant shift in its political landscape. All three main political blocs fell short of the 289 seats needed to control the 577-seat National Assembly, resulting in a hung parliament. The run-up to this election was characterized by extensive political maneuvering and the formation of strategic alliances between centrist and leftist coalitions.
President Emmanuel Macron called for the legislative snap elections following a major setback in the European Parliament elections, which his coalition, Ensemble, faced earlier in the year. Macron’s move was a calculated gamble to regain control, consolidate support for his policies, and limit the far-right’s influence in national elections. However, the outcome of the elections has left the country in a period of uncertainty and potential instability, as the results did not give any party a clear majority in the National Assembly.
Internal Implications in France
Despite the Marine Le Pen-led National Rally’s (RN) strong performance in the first round of the elections, collaborative efforts and strategic withdrawals between the left-wing New Popular Front (NFP) and Ensemble prevented them from gaining a parliamentary majority in the second round. The NFP, led by Jean-Luc Mélenchon, secured a dominant position in the elections by winning 188 seats in the National Assembly. Meanwhile, Ensemble and the RN secured 161 and 142 seats, respectively.
The fragmented parliament highlights deep political divisions within the country, which may potentially result in legislative gridlocks in the National Assembly. The NFP’s emergence also signals a shift towards left-leaning policies, likely aiming to reverse key reforms made under Macron’s administration and implement more progressive social and environmental policies. The deep political divisions also indicate a polarized electorate, with significant support for the far-right’s stance on immigration and nationalism. The RN’s increased representation in the National Assembly will likely ensure that issues like stringent immigration policies and economic nationalism remain at the forefront of parliamentary debates.
Regional and Geopolitical Implications
The outcome of the French legislative elections may likely have significant implications for Europe, given that France is a key player in the European Union (EU) and influences regional policies and directions. The NFP’s new foothold may shift France’s stance on various EU policies, such as economic reforms, environmental regulations, and social policies. France’s new political landscape may also result in increased negotiations and shifts in alliances within the EU, which may alter the institution’s balance of power and decision-making processes.
The fragmented political landscape in France may also affect the EU’s cohesion. The NFP’s progressive agenda may align with other left-leaning governments in the EU, potentially fostering new policy directions. However, the significant gains by the RN in the election underscore the continuing presence and influence of right-wing populist movements within the EU. The RN’s potential nationalist and protectionist policies may strain relations with other EU members, creating challenges in maintaining a cohesive and unified Europe. This diffraction may lead to more contentious debates and slower decision-making processes within the EU institutions.
Furthermore, France’s internal political changes may likely impact its global alliances and foreign policies. The NFP’s focus on progressive domestic policies may result in a more multilateral and cooperative approach to international relations, such as France actively participating in global climate agreements, increasing foreign aid, and strengthening ties with other progressive governments globally. Meanwhile, the RN’s emphasis on national sovereignty and economic nationalism may also influence the country’s stance on global trade and security agreements, resulting in more protectionist policies and potentially a more cautious approach to international military engagements.
Being that France is a key member of NATO, political upheaval in the country may translate to shifts in its political stance that can influence NATO’s strategic direction and modus operandi. On 11 July 2024, during NATO’s 75th Anniversary Summit, Macron met with Heads of State to reassure the country’s commitment to the alliance and its collective defense obligations despite domestic political uncertainty. The NFP’s potential influence may likely result in France taking a multilateral approach by advocating for stronger cooperative defense measures and increased contributions to NATO’s collective security efforts, specifically regarding the ongoing conflict in Ukraine.
However, the RN’s increased representation could lead to France taking a more unilateral and isolationist approach, emphasizing national sovereignty and economic nationalism. This may result in France scaling back its engagements in NATO operations, therefore lessening NATO’s unified stance. The potential shift to a unilateral and isolationist approach would likely have significant implications for the conflict in Ukraine, reducing NATO’s ability to respond to the conflict effectively by France prioritizing its interest over collective international efforts. A reduction in France’s participation in NATO’s defense efforts will likely undermine the alliance’s overall strategic objectives. Although Macron’s reassurances to Heads of State aim to mitigate concerns, the future direction of the country’s involvement in NATO operations remains unclear amid its fragmented political landscape.
The NFP’s progressive agenda may align with other left-leaning governments in the EU, potentially fostering new policy directions.
The ongoing conflict in Ukraine has resulted in a substantial influx of refugees into Western Europe, and other nations will closely watch France’s ongoing response to the crisis. The NFP’s progressive stance suggests it might support more open immigration policies, increased humanitarian aid to conflict zones, and the integration of refugees into French society. Such an approach may set a precedent for other EU countries by promoting a more unified and compassionate approach to the refugee crisis. Conversely, the RN’s focus on national sovereignty and stringent immigration policies could result in more restrictive controls that may potentially influence other EU countries experiencing a rise in right-wing populism, such as the Netherlands and Germany. This scenario could increase tensions within the EU regarding the overall management of immigration from conflict zones.
The 2024 French legislative elections have reshaped the country’s internal political dynamics and produced significant implications for the EU, NATO, and global geopolitics. As France navigates this period of political uncertainty, its approach to international alliances, European unity, and immigration will be closely watched by other nations. These factors are crucial in determining its role on the world stage and its ability to manage regional and global partnerships.
Cover image credits: http://www.vecteezy.com
