The pound, gilts and renewables: the winners and losers under Britain's future PM



LONDON, Aug 8 (Reuters) - The race to be the next leader of Britain's ruling-Conservative Party and the country's prime minister is into its final leg, with the September outcome likely to shape the fortunes of sterling, gilts and UK stocks in coming months.

The contest between foreign minister Liz Truss and former finance minister Rishi Sunak to succeed Boris Johnson has centred on clear policy dividing lines.

Sunak has vowed to control inflation and accused his rival of pushing for unfunded tax cuts that only fuel price pressures. Truss has said her priority is to kickstart growth and the tax cuts she plans to do will not be inflationary.

Here's a look at some of the assets that could emerge as likely winners and losers.

STERLING RESPITE?

The pound could be a short-term winner. If either candidate embarks on tax cuts, the economy could get a short-term boost and the Bank of England (BoE) may be inclined to keep hiking rates to ward off further price pressures.

Sterling has slid 10% against the dollar this year. That's partly because the BoE has hiked at a slower pace than the Federal Reserve, even with Thursday's big rate hike.

A BoE more determined to raise rates because of looser fiscal policy should help sterling.

But its longer-term fortunes will be tied to the economy. The BoE has just warned of a recession with a peak-to-trough fall in output of 2.1%.

If lower taxes fail to stimulate growth as Truss predicts, and worsens government finances, sterling could struggle. Her proposal to review BoE independence could also weigh. Any greater government role in monetary policy would hurt confidence in Britain's economy.

GILTS GROUNDED

British government bonds, or gilts, are in the losers' camp for now. Investors sense the outcome, especially if Truss wins, will lead to more fiscal stimulus, higher inflation and rates.

Citi forecasts a further net fiscal boost of 40 billion pounds ($49 billion) over the coming 12 months, adding 0.8 percentage points (pps) to economic growth by end-2023 and 0.4 pps to underlying inflation by 2024.

ING economist James Smith said that 30 billion pounds of tax cuts, as proposed by Truss, would likely require an extra 25-50 bps of BoE tightening.

Higher rates for longer could further lift 10-year gilt yields, already up almost 100 bps this year to 1.92% GB10YT=RR .

LEVELLING UP THE FTSE

Higher bond yields could hurt equities, especially growth stocks, said Investec chief economist Philip Shaw, noting the difficulty in making sector-specific conclusions just yet.

"For example, hypothetically are we looking at more levelling up? If we are, perhaps infrastructure stocks could get a boost, but we were hearing Truss was trying to cut salaries outside London, which doesn't exactly signal a commitment to levelling up," he said.

Truss has backtracked on a pledge to introduce regional pay boards. Johnson's "levelling up" agenda to reduce regional inequalities helped his 2019 election win.

Truss' promise to halt an increase in corporation tax also means stock markets might welcome a Truss victory over a Sunak one, although the outlook for the economy will likely remain the bigger driver.

The FTSE 100 .FTSE is up just 0.9% in 2022, but has outperformed European shares which are down 10% .STOXX .

DEFENCE, RENEWABLES, INSURERS

Some sectors were in focus as the contest plays out.

AJ Bell's head of investment analysis Laith Khalaf said Truss' plans to raise defence spending to 3% of economic growth could give defence stocks "a little pump".

Focus on security spending following Russia's invasion of Ukraine has helped lift the FTSE 350 aerospace and defence sub-index .FTNMX502010 almost 15% this year, versus a broader 1.8% drop for the FTSE 350 .FTLC .

Khalaf added that a Sunak victory could boost the renewable sector given Sunak's "full-throated commitment to net zero".

Truss has said she will review how Britain will reach its 2050 net zero target to see how it can be done in a more "market-friendly" way.

Finally, insurers such as Aviva AV.L and Legal & General LGEN.L could be among the winners.

Truss has said she wants to reform Solvency II rules, a legacy of EU membership, which govern the amount of capital insurers need to hold against their investments.

Insurers are lobbying to hold less capital against riskier assets such as infrastructure, a change which they say will help them fund economic growth.



UK 'Misery Index' at highest since 1995 Link
BoE rate moves Link
FTSE Outperformance Link
Defence stocks Link



Reporting by Tommy Reggiori Wilkes, Dhara Ranasinghe, Samuel
Indyk and Lucy Raitano; additional reporting by David Milliken,
Bill Schomberg and Carolyn Cohn; Editing by Dhara Ranasinghe and
David Evans

면책조항: XM Group 회사는 체결 전용 서비스와 온라인 거래 플랫폼에 대한 접근을 제공하여, 개인이 웹사이트에서 또는 웹사이트를 통해 이용 가능한 콘텐츠를 보거나 사용할 수 있도록 허용합니다. 이에 대해 변경하거나 확장할 의도는 없습니다. 이러한 접근 및 사용에는 다음 사항이 항상 적용됩니다: (i) 이용 약관, (ii) 위험 경고, (iii) 완전 면책조항. 따라서, 이러한 콘텐츠는 일반적인 정보에 불과합니다. 특히, 온라인 거래 플랫폼의 콘텐츠는 금융 시장에서의 거래에 대한 권유나 제안이 아닙니다. 금융 시장에서의 거래는 자본에 상당한 위험을 수반합니다.

온라인 거래 플랫폼에 공개된 모든 자료는 교육/정보 목적으로만 제공되며, 금융, 투자세 또는 거래 조언 및 권고, 거래 가격 기록, 금융 상품 또는 원치 않는 금융 프로모션의 거래 제안 또는 권유를 포함하지 않으며, 포함해서도 안됩니다.

이 웹사이트에 포함된 모든 의견, 뉴스, 리서치, 분석, 가격, 기타 정보 또는 제3자 사이트에 대한 링크와 같이 XM이 준비하는 콘텐츠 뿐만 아니라, 제3자 콘텐츠는 일반 시장 논평으로서 "현재" 기준으로 제공되며, 투자 조언으로 여겨지지 않습니다. 모든 콘텐츠가 투자 리서치로 해석되는 경우, 투자 리서치의 독립성을 촉진하기 위해 고안된 법적 요건에 따라 콘텐츠가 의도되지 않았으며, 준비되지 않았다는 점을 인지하고 동의해야 합니다. 따라서, 관련 법률 및 규정에 따른 마케팅 커뮤니케이션이라고 간주됩니다. 여기에서 접근할 수 있는 앞서 언급한 정보에 대한 비독립 투자 리서치 및 위험 경고 알림을 읽고, 이해하시기 바랍니다.

우리는 웹사이트에서 최고의 경험을 전해드리기 위해 쿠키를 사용하고 있습니다. 자세히 읽거나 쿠키 설정을 변경하세요.

리스크 경고: 고객님의 자본이 위험에 노출 될 수 있습니다. 레버리지 상품은 모든 분들에게 적합하지 않을수 있습니다. 당사의 리스크 공시를 참고하시기 바랍니다.