Wall Street banks name UK stocks to watch

Published Wed, Jul 3 20247:30 PM EDTUpdated Mon, Jul 8 202411:50 AM EDT

Just as U.K. politicians standing in Thursday's general election will win or lose, some stocks are also destined for a similar fate soon afterward. Analysts at RBC Capital Markets say there are parallels between current market performance and that of the 1997 election — the last time the U.K. transitioned from a Conservative to a Labour government. "The most correlation in 2024 is seen with the positive performance period around the 1997 election – the last time we had an incoming Labour government. However, the positive performance this time is broader across the market spectrum," said RBC analysts led by Mark Fielding in a research note to clients on June 26. The FTSE 100 has demonstrated robust pre-election performance, with 7.3% total returns this year. It would mark the second-highest pre-election performance since 1992, trailing only the 12.6% surge seen before the 1997 election, according to RBC's Fielding. "Overall, should a similar pattern to the 1997 election emerge in the future, the forward 1, 3, and 6-month periods could be notably strong." Notably, the FTSE 250 , typically more sensitive to domestic U.K. market conditions, has also shown strong growth, more closely mirroring the FTSE 100 than it did in 1997. Although the index has declined by more than 2% over the past month, Fielding said the index typically bounced back by 2.4% in the week following the election results and 2.3% over the following month historically. .FTSE .FTMC 5Y line The investment bank named several sectors and stocks that could see a significant impact from a Labour victory. Genuit , Howden , and Travis Perkins were highlighted in the Building Materials sector, while Taylor Wimpey and Vistry were flagged in the homebuilders category. AFC Energy and ITM Power , two companies in the clean hydrogen production sector, are also expected to be net beneficiaries. Citi's analyst Ami Galla also expects the housing sector to be potentially impacted by the General Election results. Galla expects that National Planning Policy Framework (NPPF) reforms — promised by the expected election winners Labour — could significantly benefit housebuilders' short-term land banks. "Investor sentiment looks positive on the prospect of planning reforms, driving significant tailwinds for the housebuilders and improving the sector's supply capacity over the medium term," Galla said in a research note to clients on July 3. The bank specifically highlighted Barratt , Persimmon , and Taylor Wimpey as companies likely to benefit from these reforms. "Persimmon and Taylor Wimpey look best positioned to benefit from NPPF reforms to the short-term landbank and potential gains on strategic pipeline, while Barratt is likely benefit from higher land opportunities given its balance sheet strength and gains to the strategic pipeline," Galla explained. "Barratt and Taylor Wimpey remain our preferred Buy-rated names given the opportunities arising from potential planning reforms and relatively undemanding valuations." The downside risks It's not all upside for all stocks, analysts say. RBC also cautioned that certain stocks may face headwinds under a Labour government. These include Technip Energies in the energy transition sector, online retailers ASOS , boohoo Group and Germany-listed Zalando as well as stockbrokers and asset managers AJ Bell, Rathbones and St. James's Place. The investment bank also expects London-focused housebuilder Berkeley to be challenged under Labour.