These Are the Stocks to Watch in Case of a U.K. Snap Election

(Bloomberg) -- With the real possibility of the U.K. holding its third election in just over four years, sectors including utilities, homebuilders and government contractors are in focus as investors attempt to figure out how to play the latest developments.

To recap: Prime Minister Boris Johnson faces a crunch vote on Tuesday evening aiming to force a three-month delay to the Oct. 31 Brexit deadline. If he loses, he will attempt to trigger a snap vote on Oct. 14.

Of course, even without a general election, uncertainty will prevail in U.K. stock markets as a no-deal Brexit will remain on the horizon. Here’s a roundup of the equity sectors to watch if an election is called.

Utilities

A general election has long been cited as a key threat for U.K. water and power companies as the country’s Labour Party has previously outlined plans to nationalize parts of the sector should it come to power.

• Stocks to watch include utilities National Grid Plc and SSE Plc, as well as water companies United Utilities Group Plc and Severn Trent Plc.

Homebuilders

While the prospect of another election creates huge uncertainty in the U.K., and may therefore damp homebuyers’ appetites, pledges from either party to support the housing market may also be beneficial for the sector. “Another powerful wave of government support,” including a possible extension of the Help to Buy scheme, could be on the horizon, Deutsche Bank AG analysts said in a note Tuesday. It has previously been reported that Johnson may be considering another overhaul of stamp duty.

• Stocks to watch include Barratt Developments Plc, Persimmon Plc and Taylor Wimpey Plc, plus the more London-focused Berkeley Group Plc as well as estate agents including Countrywide Plc and Foxtons Group Plc.

Outsourcers

Companies that rely on contracts from the U.K. government -- including outsourcers and defense companies -- also face a risk premium during general elections, due to the uncertainty created and the possible impact to the volume of new contracts and extensions being awarded.

• Stocks to watch include Capita Plc, Serco Group Plc, BAE Systems Plc and Babcock International Group Plc.

Banks

Domestic U.K. banking stocks may continue to face weak sentiment, especially if a general election were to give a mandate to a government willing to push through a no-deal Brexit. Citigroup Inc. analysts predicted last week that U.K. banks could take a 25% hit to earnings as such a scenario is likely to hit economic growth at a time when interest rates are very low.

• Stocks to watch include Lloyds Banking Group Plc, Royal Bank of Scotland Group Plc, CYBG Plc, Metro Bank Plc.

Property

Retail property has been hit especially hard by the decline in U.K. consumer confidence, and the uncertainty caused by a general election won’t help. Commercial landlords are also suffering as investors fret about demand for office space and the value of those properties should worst-case Brexit scenarios become reality.

• Stocks to watch include Intu Properties Plc and Hammerson Plc along with other retail-exposed names like NewRiver REIT Plc, British Land Plc and Land Securities Group Plc.

Retailers, Travel Companies

U.K. retailers and travel companies have also suffered from lower U.K. consumer confidence and the pound’s weakness, and a general election may only extend these effects. Even TV broadcasters could take a hit from advertisers also being less willing to spend, though a renewed advertising campaign either for Brexit or an election might be a boon for some.

• Stocks to watch include U.K.-focused names like Marks & Spencer and Next Plc, plus travel firms like On the Beach Group Plc, which last month warned on profit due to the weakening pound.

Exporters

The pound’s continued slump has benefited large exporters in the FTSE 100, though it remains to be seen how long the negative correlation may hold, with strategists at Sanford C. Bernstein recently calling the country’s stock market “uninvestable” and those at JPMorgan Chase & Co. and UBS Wealth Management also advising to steer clear.

• Stocks to watch include drugmakers AstraZeneca Plc and GlaxoSmithKline Plc, seen by Morgan Stanley as no-deal beneficiaries, and specialty chemicals firm Victrex Plc, which was recently upgraded by Barclays on gains from the weak pound.

To contact the reporter on this story: Sam Unsted in London at sunsted@bloomberg.net

To contact the editors responsible for this story: Beth Mellor at bmellor@bloomberg.net, Celeste Perri

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