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    Home»Bonds»These stocks and bonds are set to win from the U.K.’s budget, analysts say
    Bonds

    These stocks and bonds are set to win from the U.K.’s budget, analysts say

    October 29, 2024


    The U.K.’s Labour Party is set to unveil its national budget for the first time in 14 years later on Wednesday. U.K. Finance Minister Rachel Reeves is expected to end months of speculation about the government’s intentions to raise taxes, change rules and borrow to support long-term investment. Investment bank analysts have highlighted several stocks that could win or lose ground if the rumored measures are unveiled or curtailed. Individual stocks are listed further below . Bonds Yields on U.K. government bonds, or gilts, have risen by around 50 basis points since the middle of September, as rumors regarding the policies that may be unveiled started trickling. While much of the boost can be attributed to yields moving up across global markets, the uncertainty around the U.K. government’s tax and spending policy has also contributed to an increase in interest rates. Goldman Sachs analysts hold that government bond yields might fall as bond prices tick up after the government finally unveils its budget and confirms how it intends to raise taxes and spend taxpayers’ money. ” Our economists expect a budget that will not be so tight as to hinder growth and investment, nor so loose as to risk fiscal stability,” said Christian Mueller-Glissmann, head of asset allocation research within portfolio strategy at Goldman Sachs, in an Oct. 28 note to clients. The Wall Street bank’s analysts added that “U.K. long-dated yields might decline with easing budget uncertainty and continued inflation relief”. They recommended investors go short on 10-year gilts , compared to a long position on 2-year and 30-year bonds . Shorting is the process of borrowing assets to sell them immediately, with an eye to repurchase them later at a lower price and pocket the difference. Conversely, investors benefit when the price of an asset rises in the long term, when they take a “long” position. The investment bank is also bullish on the FTSE 250 and the Pound Sterling , compared to the Euro. Infrastructure stocks Infrastructure and renewables companies listed on the London Stock Exchange as investment trusts are trading at “material discounts” to their values, according to analysts at Investec. While these shares have suffered from unique factors and from a higher interest rate environment, their values have been depressed in recent weeks due to the rise in government bond yields, the analysts added. Many close-ended investment trusts are priced based on the dividend premium they offer above the risk-free rate of government bonds. “We think that the recent weakness in share prices represents a potentially attractive entry point; in the main, underlying assets and projects continue to perform well operationally and we believe that the defensive characteristics that listed infrastructure exhibits, namely the relatively high initial yield and the ability to protect, at least partially, against inflation over the long term remain attractive,” said Investec’s Ben Newell and Alan Brierley. Investec’s Buy-rated stocks include Foresight Environmental , Foresight Solar Fund , Greencoat Renewables, Renewables Infrastructure , Greencoat UK Wind, HICL Infrastructure and International Public Partnerships — all of which trade between 13% and 24% below their net asset value, according to the bank. AIM-listed stocks The Alternative Investment Market, the London Stock Exchange’s junior market, is threatened by the abolition of a tax break, according to media reports. The chancellor is reported to want to remove the inheritance tax relief available to investors holding stocks listed in this market in the Wednesday budget. Such a move may entice existing investors to sell the stocks, if the tax policy change likely impacts them. Investment bank Canaccord Genuity says that several stocks will likely be affected, as investors have previously piled into them to avoid paying the tax. Ashtead Technology Ashtead Tech , the specialist rental business listed on the AIM market in 2023 has doubled its revenues over two years, although the stock has fallen by a third over the past three months. Canaccord Genuity says the company’s share price could rise by more than 45% over the next 12 months. “We believe weakness over the past few weeks presents an opportunity to access the story: Ashtead Tech is a specialist rental business supplying the marine energy industry, primarily today’s oil & gas, but with a large and fast-growing position in offshore wind,” said the bank’s analyst Alex Brooks in a note to clients on Oct. 29 AT.-GB 1Y line Aquis Exchange Aquis is one of only two regulated stock exchanges in the United Kingdom. Canaccord analysts note the company is in its “strongest position it ever has been”. However, the stock has fallen by 15% this year, with the selling intensifying over the past three months, leading to a decline of 37%, according to FactSet. The analysts pointed out that the firm’s share price has returned to its October 2022 levels, when the stock rallied by 50% over the following month. “The stock is now trading on a [2025 price-to-earnings ratio of 15 times], which we believe offers a very attractive entry point for what is a genuine, growing fintech disruptor in a high-growth and high-margin sector,” said analysts Justin Bates and Portia Patel in the October note to clients. They expect the stock to rise by 210% from the current share price. “With a significant upside to our target price, we reiterate our BUY recommendation.” AQX-GB 1Y line — CNBC’s Michael Bloom contributed reporting.



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