A Brexit-bound United Kingdom has been enduring another political storm this month, leading investors to fret about the possibility of another election.
Strategists view one stock sector as particularly at risk if the current U.K. government can’t ride out the rough seas: utilities. American investors generally view such equities as a haven, but they’re not necessarily seen that way across the pond.
For utilities, a “collapse of a splintered Conservative government and subsequent general-election victory for Jeremy Corbyn’s Labour would be seen as potentially ushering in a period of fiercer regulatory scrutiny or even renationalization,” writes Russ Mould, investment director at brokerage AJ Bell, in a note.
Utilities shares showed signs of “struggling,” and they’re among “the most politically sensitive sectors,” notes Ian Williams, a strategist at brokerage Peel Hunt.
The political turmoil ramped up July 9 when Foreign Secretary Boris Johnson resigned[1] over a disagreement with Prime Minister Theresa May’s plan for leaving the European Union. His exit, coming a day after the resignation of Brexit secretary[2] David Davis, boosted speculation[3] that Johnson might launch a leadership challenge against May, though analysts also stressed that she has survived[4] prior pushes to oust her. Johnson, Davis, and other Brexiteers have been frustrated that May has not backed a cleaner break with the EU. She has sought, for instance, a free-trade area for goods[5] between the EU and the U.K.
Read more: Brexit turmoil — 4 things investors need to know[6]
The pound GBPUSD, -0.2745%[7] slumped on July 9[8] following the shake-up in May’s cabinet, briefly trading under $1.32, which provided a lift to the U.K.’s FTSE 100 benchmark UKX, +0.48%[9] . A weaker pound can boost the index, since its multinationals generate most of their revenue in other currencies. But utilities shares bucked the positive trend for equities during that session, falling instead.
AJ Bell’s Mould highlighted weakness in shares of electricity and natural-gas distributor National Grid NG., -0.52%[10] and water providers Severn Trent SVT, -1.90%[11] and United Utilities Group UU., -1.59%[12] ...