Result will exacerbate margin headwinds, add to imported inflation & erode spending power
Companies: BCA, BOO, BAR, MYSL, SDG
The UK's decision to not elect a majority government will cause uncertainty and weigh on domestic consumer stocks, said city Broker N+1 Singer in a report published this morning.
According to N+1 Singers, the stocks that benefit from sterling weakness include Boohoo, MySale, Swallowfield, Walker Greenbank, and BCA Marketplace.
The result and subsequent uncertainty of the possible Tory-DUP coalition looks challenging and will create significant uncertainty around the UK government and Brexit negotiations, said Analyst Matthew McEachran.
"A disastrous Conservative campaign full of unforced errors has resulted in a hung parliament, losing 12 seats vs. Labour gaining 29... As a result, Sterling has fallen to a new 6-month low vs. the Euro, but less so against an also weak Dollar."
Heading into the election markets had been discounting a Tory majority, but the hung parliament will likely now see sterling weaken, which Mr McEachran says will lead to increased pressure on inflation, consumer confidence and consumption, and that this will see another shift to international earners (stocks) from domestics.
"Depending on coalition talks, or if another election is needed, this picture could deteriorate further. Overall, this is negative for domestic consumer stocks, especially those reliant on foreign sourcing and an above average age demographic."
Singers says it expects this to exacerbate margin headwinds, as well as adding to imported inflation and erosion of spending power - likely weighing on consumer confidence.