Following a lacklustre campaign, interspersed by some appalling terrorist outrages, the Conservative party, under Theresa May, failed to secure a majority in yesterday’s general election. A hung parliament is the result, with May staying on as Prime Minister – for the moment.
Remarkably, the stock market remained rock solid – the FTSE-100 was up by around 40 points at lunchtime – despite all the Brexit-related issues that now arise.
Interestingly, very few opinion polls had predicted the result – and virtually none had the Labour party’s share of the vote exceeding 40 per cent.
And, despite an initial fall in the pound sterling, there were no major stock market movements like those generated by the equally surprising Brexit result a year ago.
Nor did water stocks move significantly on the back of the result – unlike in 1992, when the unexpected Conservative party win boosted water stocks by no less than 18 per cent on the day after the actual Election.
Tremendous uncertainty
But today’s result will concern many overseas investors, both in terms of the tremendous uncertainty created, especially on delivering Brexit, and of the very radical economic and re-nationalisation policies put forward by the Labour party.
In fact, by lunchtime today, the two leading utilities – National Grid, capitalised at approximately £35 billion, and Centrica – were trading very slightly below last night’s closing prices. SSE’s shares, by contrast, are marginally higher.
And water stocks maintain their solid advance since the last periodic review, although the threat of re-nationalisation by an incoming Labour government has not disappeared.
But the election result will not lift the pressures on BT, as it grapples with many issues. It needs to cling on to its controversial ownership of Openreach to service its horrendous – and long-standing – pension liabilities: BT’s shares were slightly down when the market opened this morning.
Despite the very surprising result, there remains unfinished business for the minority Conservative government in the energy sector.
The Conservative manifesto proclaimed that “our ambition is that the UK should have the lowest energy costs in Europe, both for households and businesses”. An ambitious target indeed.
Furthermore, the manifesto confirmed that there would be yet another “independent review into the cost of energy”.
Price caps
More specifically, one of the party’s most controversial pledges was to cap energy prices – a policy little different from that espoused by the previous Labour party leader, Ed Miliband, and roundly condemned by leading Conservatives.
In fact, a more diluted version is expected, with a ‘safeguard tariff cap’ being imposed by Ofgem, which would be an extension of the existing arrangements for the least well-off energy consumers.
This ‘light touch’ regulation should help protect both Centrica’s domestic gas margins – and its potentially shaky share price.
In terms of renewable electricity generation, offshore wind development and the installation of wind turbines in remote Scottish islands seem likely to go ahead.
But the quest to deliver meaningful quantities of shale gas may stall again given the political ‘head of steam’ that it generates.
On the water front, very little change is anticipated, with the next periodic review – due to impact in spring 2020 – being paramount.
However, the Conservative manifesto did pledge to ‘update the rules that govern mergers and take-overs’; this plan could reduce some of the frothy bid speculation in the share price ratings of both Severn Trent and Pennon.
In summary – and unlike the 1992 knife-edge result – stock market interest in this general election had been muted, but its very surprising outcome provides considerable uncertainty – and presages a further general election within 18 months.