Autumn statement - stock market winners and losers

23 November 2016

Russ Mould, investment director at AJ Bell:

“A projected total spend of around £10 billion on broadband, roads, railways, homes and innovation compares to a UK economy of some £1.8 trillion and as such is unlikely to provide a major lift to the UK economy.

“However, brick makers such as Ibstock and Forterra are likely to welcome the plan to spend £1.4 billion to deliver 40,000 affordable homes, above and beyond the £3 billion housing fund that has already been announced with a plan to “get Britain building”. The focus on affordable homes may be of less use to the large quoted housebuilders as average selling prices tend to be lower here. Property developers like MJ Gleeson, St Modwen and Henry Boot may also benefit as new sites are sought for fresh housing developments.

“Infrastructure plays such as WS Atkins, Kier Hill & Smith, Balfour Beatty and Renew Holdings will doubtless welcome more spend on road and railways although the news has been so well trailered the stocks did little in the wake of the announcement.

“The £2 billion pot for research and development and innovation may fire investor enthusiasm for intellectual property incubators like Imperial Innovations and IP Group, as well as venture capital trusts, as they seek to nurture the tech and biotech winners of tomorrow.

“Shares in telecommunications systems testing expert Spirent are up a fraction on Mr Hammond’s drive to promote the development and roll-out of 5G mobile services, while a £1 billion plan to unlock a ‘gold standard’ of superfast broadband for millions of British homes could bring some comfort to telecoms service providers, if it enables consumers to buy and download more readily. CityFibre’s shares are up by some 4% while Sky, TalkTalk and BT will be watching developments here with interest.

“The biggest movers on the day, however, all look to be losers, in the form of the quoted real estate agents whose income is under attack from the Chancellor’s plan to abolish letting agent fees. Shares in Belvoir Lettings, Foxtons, Countrywide, LSL Property Services and Martinco all found themselves out in the cold, with share price falls in the 6% to 8% range.

“Despite the Chancellor’s decision to increase insurance premium tax shares in major insurers like Admiral, AA and esure look unmoved. Meanwhile Royal Bank of Scotland’s stock drew little succour from the Autumn Statement’s small print, which disclosed that the Government is abandoning plans to sell down its stake in the near term. The shares fell 2.5% to 203p, way below the Government’s 503p a share average purchase price.”

The wider economy

“Back in March, George Osborne only managed to cling on to his target of a £10 billion budget surplus by 2019-20 via financial sleight-of-hand and his successor Philip Hammond has given up the pretence, using Brexit as a ready-made reason. The new Chancellor still wants to reduce the annual deficit but accepts it can only be done more slowly as the economy fails to reach escape velocity, amid doubts over what the result of the EU referendum may mean for the UK’s economy.

“The revised GDP growth and budget deficit figures show just how little room for manoeuvre is available to the Chancellor when it comes to fiscal stimulus.  This is something investors should bear in mind given the recent bond market rout and dash within the equity market from defensives and yield plays to cyclical and turnaround stocks.

“We still seem to be trapped in a slow growth environment, where a sudden outburst of inflation is by no means guaranteed owing to the deflationary impact of the national debt, demographics and the price-crushing powers of the internet.”

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