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Analysts bullish on FTSE 250 after Tory win

By Michele Maatouk

Date: Friday 13 Dec 2019

LONDON (ShareCast) - (Sharecast News) - Analysts sounded an upbeat note on UK equities on Friday after the Conservative Party won a majority in the general election, highlighting a preference for stocks with domestic exposure.
Morgan Stanley analysts said the UK was one of the "most unloved and undervalued" major stock markets. However, with Brexit uncertainty receding further after the Tory win, they reckoned investors will start to rotate back into the UK. MS said it sees an outperformance of around 12% for the more domestically-focused mid-cap FTSE 250 versus the FTSE 100, which is made up mostly of exporters.

"Eurozone equities are set to benefit too, with a 5% re-rating likely," MS analysts said.

Barclays was also bullish on mid-cap stocks in the aftermath of the election.

"Domestic UK sectors like banks, homebuilders, utilities and real estate are likely to be supported the most. With a large Tory majority effectively providing a floor to GBP, we expect UK equities to underperform their euro area peers further into 2020.

"More broadly, we believe that the end of the political deadlock in the UK, with disorderly Brexit and Labour government tail-risks now removed, along with the improving trade war newsflow and the rising evidence of a bottoming-out in global growth, could be the triggers for investors to add back to European equities and rotate out of the US."

Analysts at RBC Capital Markets said the Tory win was likely to "add to the allure" of domestic businesses at the expense of internationally-oriented companies.

They pointed out that the risk of bus and rail nationalisation would disappear, as it would for utility companies, especially the water names. "That said for UK water names, we see valuations as relatively full already," they added.

Labour had promised that nationalisation would be on the agenda in the first 100 days of a majority Labour government.

Jefferies analyst David Owen offered up a list of 22 stocks that he argued would be positively impacted by the Conservative victory and a further list of stocks to avoid, mainly due to sterling strength.

"Utilities, banks, builders and retail dominate our buy list," he said. It includes stocks such as BT, RBS, Centrica, Persimmon, Greencore, Dart Group, Paragon and Morrisons.

On the downside, Owen said staples, miners and global industrials would see the biggest negative impact. He highlighted British American Tobacco, BAE Systems, InterContinental Hotels Group and Rentokil.

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