Sector movers: utilities beaten, aerospace and defense seen as policy-resistant

The utilities sector was the victim of the Chancellor’s announcement of a general election on July 4, rather than in the fall as many analysts had expected.

Citi analysts say water companies are likely to suffer the most from increased political risk.

Among other things, the pre-election purdah period meant that the UK Water Sector Draft Arrangements were likely to be postponed.

News of National Grid’s capital raise and the recent decline in interest rate cut expectations on both sides of the Atlantic also acted as a headwind.

On the other hand, UK defense spending was expected to be insulated from political disputes, Citi added in a separate research note sent to clients.

“It is also worth noting that defense production tends to be carried out in industrial areas, which are likely to be Labor constituencies, which increases the likelihood of broad parliamentary support,” they said.

“Finally, with both parties campaigning, it is likely that much will be said in the run-up to the election, but overall there appears to be cross-party support for increasing defense if public finances allow.”

Politics aside, foreign investors clearly still saw value in bottom fishing for British stocks, as evidenced by Hargreaves Lansdown’s surprise overnight offer.

However, according to analysts at Canaccord Genuity: “Any successful bid would have to carry a significant strategic premium above our (target price of 1,148.0p), in our view. As the UK’s largest D2C wealth platform, with £150bn AUA, c0.1.9m customers and an ROE of 55% (FY23), HL is a valued asset in the UK wealth market.

Sectors that are currently performing best

Aerospace and defense industry 11,283.68 +2.17%

Household goods and house construction 14,073.23 +1.42%

Food producers 8451.46 +0.92%

Investment Banking and Brokerage Services 14,787.65 +0.74%

Computer software and services 2496.77 +0.58%

The lowest performing sectors so far

Gas, water and utilities 5866.33 -8.58%

Medical equipment and services 12,093.97 -4.32%

Electricity 10,595.09 -3.12%

Precious metals and mining 10,531.72 -1.93%

Real estate investment funds 2,328.10 -1.59%