Billions of pounds was added to the value of businesses from BT and Centrica to National Grid as relieved investors drove up their share prices after the UK election extinguished the threat of Labour nationalisations.
Shares in BT opened up 8 per cent at 200p on Friday as investors welcomed the prospect of a majority Conservative government, which is now expected to invest in the UK’s broadband network alongside the telecoms group.
The Labour party had sent a chill through utility and telecoms stocks by vowing to “bring rail, mail, water and energy into public ownership to end the great privatisation rip-off”.
National Grid shares climbed 6 per cent while energy utility stocks also rose, with Centrica opening up 7.4 per cent, Pennon Group climbing by 7.3 per cent, and SSE and United Utilities up 9.2 per cent and 6.4 per cent respectively.
The relief rally in former nationalisation targets led a broader rise in stocks in London, with the more UK-focused companies of the FTSE 250 performing better than those in the FTSE 100, where more earnings are in foreign currencies that will get hit by the strengthening pound.
Royal Mail, which had also faced the prospect of being brought back into state ownership by a Labour government, was trading almost 6 per cent higher at 244p, while Firstgroup, the transport operator, was up almost 8 per cent 118.8p.
More than £6bn was added to the market capitalisations of eight of the stocks viewed by analysts as the most likely Labour nationalisation targets.
The CBI, the employers’ organisation, had estimated that Labour’s nationalisation would have cost an initial £196bn and the threat of a Labour government seeking to pay below market price for businesses had hit utility and telecoms stocks.
Martin Young, equity research analyst at Investec, said: “There’s relief that there is a decisive outcome to the election and for the network utilities the removal of nationalisation risk is a major benefit.”
Andrew Jackson, head of fixed income at Hermes Investment Management, said that the reaction in utility stocks was “more symptomatic of a ‘relief rally’ that things will not be worse, rather than acute optimism”.
One of the more controversial proposals floated by the Labour party was the nationalisation of BT’s broadband network, Openreach, which had sparked concerns across the telecoms industry and weighed on the group’s shares.
Philip Jansen, chief executive of BT, declined to comment on the Labour plans but added: “There are lots of things for the new government to get done, few more important to the UK than speeding up the delivery of full-fibre broadband. Our new ministers can take some simple, immediate steps to cut through the red tape and help us build like the clappers.”
One telecoms executive, who did not want to be named, said that “with the prospect of a Labour lumberjack taking an axe to a competitive broadband market now behind us, it is important the Conservative government focuses on providing longer-term certainty and stability, so that investment in Britain can boom once again”.
Matthew Jennings, investment director at Fidelity International, said that this is “the market breathing a sigh of relief rather than starting a full-blown Christmas party”.
He added: “The tail risk of an anti-business Labour government is now obsolete, which has led to a relief rally in politically sensitive sectors such as utilities and banks. However, once the dust settles, investors will remember that the UK still has no trade deal with the EU post-Brexit, which is likely to limit appetite for UK assets.”
UK-focused bank and property stocks also rose strongly on Friday morning, with analysts predicting a wave of deals in the housing and commercial real estate markets given the end of the threat of a Labour government.
Additional reporting by David Sheppard and Nic Fildes