‘Sell everything and leave the country!’ That was the immediate response from a well-known City stockbroker to the notion of a Corbyn-led government.
He is not alone. Millions of investors, large and small, are terrified by the idea of a Labour victory at the next General Election. Their fear is understandable.
Labour intends to force large companies to hand over 10 per cent of their shares to employees. They say they will raise the minimum wage and increase corporation tax.
Liquid assets: Shares in Diageo, which makes Johnnie Walker whisky, are likely to be a safe bet
They will renationalise the railways, water firms and the electricity sector, as well as Royal Mail. They will scrutinise the salary structure of any company supplying the public sector. And they may make it harder for certain businesses to be taken over, particularly by overseas predators.
Corbyn and Shadow Chancellor John McDonnell have also pledged to increase public sector spending, which may well feed through to rising inflation. And they are keen to squeeze anyone they consider too wealthy, by raising taxes and taking pot shots at the City.
It is a recipe almost guaranteed to unnerve businesses and markets. So, if Corbyn were handed the keys to 10 Downing Street, the stock market would almost certainly tumble in response. Shares would fall, the pound would weaken and most investors would panic.
More than half the shares in the UK are owned by large, international investment firms too. They have already begun to withdraw money from our stock market, appalled by the prolonged Brexit agony. If Corbyn came to power, that process would almost certainly accelerate.
But all is not lost. History shows that, over time, shares generate steady, inflation-beating returns, whoever is in charge at Westminster. The stock market has risen during 11 of the last 13 governments, including Theresa May’s current stint at the helm.
The best British businesses are resilient. They consistently try to get on with the job, delivering stuff that people want at a price they are prepared to pay. Share prices are also heavily influenced by events outside Parliament, particularly today, when trade is increasingly global.
Companies in the FTSE 100 index derive around 70 per cent of their earnings from overseas, for example, while even smaller firms can be heavily involved in export markets.
It is worth remembering too that stock market investing works best for savers with a long-term time horizon – ten, 20 or even 30 years – significantly longer than Corbyn would probably last in government.
Some of his more radical policies may also hit the long grass if Labour actually won a General Election, particularly if the party had a small majority.
And as Laith Khalaf of investment firm Hargreaves Lansdown points out: ‘In times of uncertainty, it makes sense to drip money into the stock market gradually so that even if it falls you benefit by buying in at a lower price.’
That said, some firms and sectors are likely to fare badly under Corbyn, but others may prove robust.
THE LOSERS: Royal Mail shares have halved
Companies facing renationalisation are the most obvious losers from a Labour administration. These include the water firms United Utilities, Pennon and Severn Trent, energy businesses Centrica, National Grid and SSE and Royal Mail, whose shares have more than halved in the last year alone.
It is far from clear how Corbyn would take these groups back into state ownership – or the price at which he would try to do so – but he would almost certainly try to buy them as cheaply as possible, and the shares would fall in anticipation.
Raising the minimum wage to £10 an hour would hit many businesses too, particularly those with large numbers of low-paid employees, such as supermarkets. This could spell bad news for Tesco and Sainsbury’s, already struggling against discounters such as Aldi and Lidl. Higher wages would boost disposable income, but as Charles Hall of broker Peel Hunt points out: ‘Rising labour costs tend to more than offset higher sales at the till.’
On your bike: Royal Mail is likely to be renationalised under Labour
Public-private partnerships have been fiercely criticised in recent years. Private firms involved in building or managing projects such as prisons, schools and hospitals have been accused of profiteering and delivering sub-standard services. Construction and facilities management firm Carillion sent shockwaves through the industry when it collapsed last year, while rival Interserve was sold to its lenders just last month, leaving shareholders with nothing.
Shares in peers such as G4S, Serco, Babcock and Capita have already tumbled in recent years, but large investors fear Corbyn could make life even more difficult for these companies.
Commercial property firms could suffer too. Most economists are pessimistic about the UK’s growth prospects under Labour and, if companies make less money or go out of business altogether, rents will fall, property prices will decrease and the number of empty offices, factories and shops will rise. That trend is already starting but it could become even worse, affecting stocks such as British Land and Land Securities.
Some brokers worry that Labour might fiddle with inheritance tax and that could affect Aim shares, many of which are exempt from the tax. ‘Many decent-quality companies on Aim could be hard hit if Corbyn changed inheritance tax rules. That might prove very damaging for some of Britain’s best small companies,’ says Charles Hall of broker Peel Hunt.
More broadly, firms that are heavily skewed towards the UK economy are likely to be hardest hit by worried investors, including many businesses in the FTSE 250 index.
THE WINNERS: Tuck away gold, it’s the classic asset for a crisis
The most obvious winners from a Corbyn government are companies that earn most of their money outside the UK.
They would benefit in two ways. First, their day-to-day business would be out of Corbyn’s reach and unaffected by his policies.
Second, if the pound fell and they were earning dollars or euros, for instance, their profits would seem higher when translated back into sterling. Dividends can benefit in this way too, as investors in big dollar-earners, such as BP or Shell, have seen in recent years.
Under Labour, oil companies – and even mining companies – may be faced with some sort of green tax so their future is relatively uncertain.
However, stocks such as Unilever or Diageo may prove more resistant to Corbyn’s clutches.
Unilever’s products include PG Tips, Persil, Cif and Hellmann’s mayonnaise and its wares are used by two billion people every day. Diageo makes some of the best-known drinks in the world, such as Johnnie Walker, Smirnoff, Baileys and Guinness, and sells them in more than 180 countries.
Not only are these companies incredibly international, they also make things that UK consumers need and use every day – and when it comes to alcohol, consumption may even rise if conditions really go downhill.
As Russ Mould, of investment firm AJ Bell, points out: ‘In the 1970s, when the UK was really in trouble, anything you could pour down your throat or in the sink tended to do well.’
Other multinationals likely to be relatively Corbyn-proof include credit specialist Experian, paper and packaging group Mondi and Bunzl, whose products range from paper cups to supermarket labels to hospital bandages.
Recruiter Hays may be all right too. The firm has a big overseas presence and at home it works extensively with the public sector, including the NHS, where Labour has promised to boost funding and jobs. Housebuilders focused on low-cost homes could also benefit from Labour’s well publicised desire to mend Britain’s housing crisis.
MJ Gleeson is a case in point. Recommended by Midas at 104p in 2011, shares in the affordable homes specialist are now 810p, but should continue to make progress under Labour.
There are also some impressive niche businesses to look out for. Specialists in their field, these companies are making progress at home and abroad.
AB Dynamics, for example, makes robots and other kit used by carmakers when they are testing new models.
And Porvair makes specialist filtration systems used in industries from life sciences to plane manufacturing.
Both recommended by Midas in recent years, they are dynamic firms, respected around the world and their shares should prove resilient.
No share portfolio will be entirely immune to the machinations of an extremely Left-wing government.
But a diverse range of shares should help to counter the most extreme effects of radical new policies.
It is also worth remembering that classic, defensive asset – gold. Tuck some away. It is the ultimate investment for a crisis.
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