Skip to content
Search

Latest Stories

Investors wary of long-term bets on Starmer government

Investors said Labour still needed to revive long-term confidence in UK markets that have struggled since the Brexit vote

Investors wary of long-term bets on Starmer government

BIG investors are warming to Britain after a landslide election win for its new Labour government, but remain wary of placing long-term bets until prime minister Keir Starmer can convince them his economic growth plans are credible.

Sterling, the strongest major currency against the dollar this year, nudged higher on Friday when the scale of Labour's victory became clear. The UK-focused FTSE 250 share index, which has outpaced the more global FTSE 100 year-to-date, rose to its highest since April 2022.


But investors said Labour still needed to revive long-term confidence in UK markets that have struggled since 2016's Brexit vote and the chaos wreaked by Conservative former prime minister Liz Truss' 2022 mini-Budget.

Left-leaning Labour has pledged to upgrade Britain's creaking infrastructure and solve a housing shortage while keeping spending tight as the UK's tax burden approaches an all-time high.

Public debt

But credit rating agencies and Britain's lenders in international bond markets are twitchy about public debt that is expected to exceed 100 per cent of gross domestic product.

"They have to walk a tightrope between economic growth and government debt. We have to see if debt issuance is going to rise, and if the economy can expand at a rate where extra borrowing is deemed acceptable," said Sheldon MacDonald, chief investment officer at UK asset manager Marlborough.

MacDonald said he had a neutral outlook on UK stocks but was slightly positive on gilts because of expected Bank of England rate cuts.

After years of relentless outflows, the combined market value of companies in the broad FTSE-All stock index, at £2.4 trillion pounds, is below that of individual US tech stocks like Apple and chipmaker Nvidia.

Stability, then what?

After Rishi Sunak conceded defeat to Labour early on Friday and resigned as party leader, the Conservatives were set to choose their sixth leader since 2016 following years of infighting over Britain's post-Brexit future.

Investors hope Starmer and his incoming finance minister, former Bank of England economist Rachel Reeves, will provide more stable leadership as well as predictable tax and trade policies.

"Investors in New York or Hong Kong would have read the headlines and found it easy to say why bother, it's a basket case," said Toby Gibb, head of investment solutions at fund manager Artemis.

"What (the election) does is relieve that uncertainty, it allows overseas investors to invest with more security."

In one positive sign, sterling on a trade-weighted basis is back at levels last seen before the Brexit vote.

Gibb said he expected the pound to stay strong and was bullish on UK stocks.

Other investors were staying cautious.

"We know that a general incremental improvement can come from political stability but we don't know what changes are going to happen," said Janus Henderson European equities portfolio manager Tom O'Hara, whose UK exposure is below Britain's share of MSCI's broad European index.

"You need something more tangible," he explained, "such as which companies are going to benefit from which policies."

Slow growth

Britain has not grown faster than 2 per cent a year on a regular basis since before the 2008 global financial crisis.

Ben Mackie, fund manager at UK-based Hawksmoor Investment Management, said he was also not buying into a UK growth theme.

"The UK stock market and economy face big structural issues," he said, adding that outflows from UK equity funds had been "horrendously negative."

UK business investment is ranked 28th among 31 OECD economies, foreign direct investment has faltered and workplace productivity is weak.

British pension funds and insurers have slashed the share of UK stocks in their portfolios to about 4 per cent from 50 per cent in 2000 according to advisory group Ondra.

Funds outflow

In June, even as polls moved to predict Labour's historic victory, investors pulled $5.9 billion (£4.6bn) out of UK equity funds, marking the 44th consecutive month of outflows, LSEG data showed.

But in one positive sign, big US and Asian investors were asking questions about the UK for the first time in years, said UBS head of European equity strategy Gerry Fowler.

"Interest has become more widespread," he said. "But that enthusiasm isn't likely to be translating into really strong performance in the near term. I don't think much money has moved in yet." (Reuters)

More For You

India cuts bourbon whisky tariffs after US pressure

FILE PHOTO: Jim Beam bourbon is shown in Chicago, Illinois. (Photo Illustration by Scott Olson/Getty Images)

India cuts bourbon whisky tariffs after US pressure

INDIA has slashed tariffs on bourbon whisky to 100 per cent from 150 per cent, a move that will benefit imports of brands like Suntory's Jim Beam, after US president Donald Trump's criticised "unfair" levies in the South Asian market.

Trump, who met Indian prime minister Narendra Modi at the White House this week, has railed against the climate for American businesses in India and unveiled a roadmap for reciprocal tariffs on countries that put duties on US imports.

Keep ReadingShow less
Prudential to list Indian asset management venture

Prudential chief executive Anil Wadhwani

Prudential to list Indian asset management venture

INSURER Prudential plc announced that it is considering a partial listing of its stake in ICICI Prudential Asset Management, one of India's leading investment firms. The news sent Prudential's shares soaring by 5.8 per cent to close at 722p on the London Stock Exchange.

The FTSE 100 company currently holds a 49 per cent stake in the Indian joint venture, which market analysts estimate to be worth around £4 billion. ICICI Bank, which owns the remaining 51 per cent, has confirmed its intention to maintain its majority shareholding, emphasising its "long-term commitment" to the partnership that began in 1998, reported the Times.

Keep ReadingShow less
NatWest-Reuters

The bank has set a new performance target, aiming for a return on tangible equity of 15-16 per cent in 2025 and above 15 per cent by 2027. (Photo: Reuters)

What’s driving NatWest’s better-than-expected profit growth?

NATWEST reported higher-than-expected annual profit on Friday, supported by its growth strategy, improved productivity, and capital management efforts.

The bank, which once had assets worth 2.2 trillion pounds—more than twice the size of the British economy—has undergone years of restructuring to focus mainly on domestic consumer and mortgage lending.

Keep ReadingShow less
London business district
A general view shows the London's financial district from an office window in Canary Wharf. (Photo: Getty Images)

Economy grows 0.1 per cent in fourth quarter, defying expectations

THE UK economy expanded by 0.1 per cent in the final quarter of 2024, contrary to forecasts of a contraction, according to official data released on Thursday.

The growth, supported by a stronger-than-expected 0.4 per cent rise in December, offers some relief to chancellor Rachel Reeves as she navigates broader economic challenges.

Keep ReadingShow less
BP-Reuters

Fourth-quarter profit dropped 61 per cent compared to the previous year, marking BP’s weakest results since Q4 2020, when the pandemic reduced global oil demand. (Photo: Reuters)

BP reports lowest quarterly profit in four years, plans strategy reset

BP reported a quarterly profit of £943 million on Tuesday, falling short of expectations and marking its lowest in four years.

The company said it plans a "fundamental reset" of its strategy, days after reports that Elliott Management had taken a stake in the oil major.

Keep ReadingShow less