How Has Boris Johnson Impacted The Stock Market?

  • Jun 19, 2019 BST
  • Team Kalkine
How Has Boris Johnson Impacted The Stock Market?

The second round in Tory leadership vote saw ex-foreign secretary Boris Johnson surge ahead of his rivals while former Brexit Secretary Dominic Raab dropped out of the race for party leader after failing to secure the minimum number of votes. The former mayor of London Johnson extended his lead over the remaining four rivals as he won 126 out of 313 votes on Tuesday, 12 more votes than in the first poll held last Thursday, with his closest rival, Jeremy Hunt, picked up 46 of Tory votes. Rory Stewart, the current international development secretary, has been the hands-down star of this leadership race with biggest leap forward of Johnson's remaining rivals, winning the support of 37 Conservative members of Parliament, up from 19 in the last round.

While Boris Johnson is trying to present himself as the only true Brexit candidate capable of pulling Britain out of the European Union, the Conservative party currently heads a minority government in a Parliament which does not support no-deal Brexit. As Mr Stewart has pointed out, as the Parliament will not realistically allow the country to leave the EU without a deal, contenders claiming the same are not being honest. He further called Brexit promises made by leading contender Johnson as fantasy. He also warned that the country might have to go back to Brussel, or worse, hold a general election which the Tory is expected to lose.

Amid the ongoing Brexit uncertainty and the increase in no-deal Brexit risks after Boris Johnson saw a landslide victory in the Tory leadership contest, risks to the economic outlook for the UK remain tilted to the downside. Consequently, Sterling continued to edge lower, slipping to its lowest level against the Euro since early January, while also falling to fresh yearly low versus the US dollar. So far, the Pound has tended to weaken when a hard or cliff-edge becomes more likely and strengthen when the possibility of a soft Brexit increases. However, the FTSE 100 index of the major London-listed stocks has tended to move inversely to the Pound, rising when GBP falls and vice versa, reflecting the fact that two-thirds of the revenue generated among FTSE 100 companies are from overseas, thus repatriated profits are worth more when the Pound falls.

After mounting political worries sent sterling below $1.26 for the first time since a January 3 flash crash, the internationally exposed stocks such as British American Tobacco, Unilever and Diageo were among the biggest boosts to the main index. However, the Brexit saga appears to have little to do with stand-out performances among individual stocks, such as clothes retailer Next and London Stock Exchange Group. The LSE group may lose large chunks of some of its core businesses in the event of a Hard Brexit and the UK spending that has shown clear signs of weakness as Brexit-related uncertainties slowed the economy, and despite this, these two stocks have risen sharply in recent times. However, Since May 22, when it became clear that Prime Minister Theresa May would not continue as the PM of the country, Brexit sensitive stocks have experienced a sharp fall. The threat of May being replaced by Brexiteer, like Mr Johnson, has kept investors on their toes.

Given the impact, the Brexit uncertainty has had on the consumer appetite to spend money and house prices, housebuilders are one of the most sensitive sectors to Brexit, with market analysts anticipating harsh outcomes in case of Hard Brexit. Taylor Wimpey PLC (TW) is a residential housing developer which operates at a regional level from 24 local offices across the country. It is one of the UK's largest residential developers and builds a wide range of properties, with a broad price range. Since the imminent exit of Mrs May became apparent, the stock has been falling. Recently, the housebuilder warned that it was struggling to keep a lid on build costs due to a combination of higher than expected demand in the short term from defensive additional buffer stock holding in the construction industry supply chain and underlying cumulative inflation and exchange rates impact on the cost base of suppliers.

Share Price Commentary

3-Months Daily Chart as at June-19-19, before the market closed (Source: Thomson Reuters)

On 19 June 2019, at the time of writing (before the market closed, at 2:50 pm GMT), TW shares were trading at GBX 157.1, remaining flat against the previous day closing price. Stock's 52 weeks High and Low is GBX 180.51/GBX 119.72. The outstanding market capitalisation was around £5.15 billion, with a dividend yield of 3.97 per cent.

Marks and Spencer Group PLC (MKS) is one of the UK's leading retailers and is headquartered in London, the United Kingdom. Recent updates from the retail sector make for grim reading as the Brexit process appears to have strongly impacted the willingness to spend, which has also resulted in lower spending on the high street.

Share Price Commentary

3-Months Daily Chart as at June-19-19, before the market closed (Source: Thomson Reuters)

On 19 June 2019, at the time of writing (before the market closed, at 3:05 pm GMT), MKS shares were trading at GBX 213.20, down by 4 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 302.80/GBX 185.00. The outstanding market capitalisation was around £4.32 billion, with a dividend yield of 6.12 per cent.

Diageo PLC (DGE) is a British alcoholic beverage company, headquartered in London, United Kingdom. Along with over 200 brands across spirits and beer, which are sold in 180 countries, the company is the world's largest producer of spirits and a key producer of beer. In the event of hard/no-deal Brexit, the pound is expected to depreciate further and the internally focused stock like Diageo is anticipated to perform better. The stock has risen in the last few months, as Sterling took a beating.

Share Price Commentary

3-Months Daily Chart as at June-19-19, before the market closed (Source: Thomson Reuters)

On 19 June 2019, at the time of writing (before the market closed, at 3:20 pm GMT), DGE shares were trading at GBX 3,388.7, remaining flat against its previous day closing price. Stock's 52 weeks High and Low is GBX 3,460.00/GBX 2,513.00. The outstanding market capitalisation was around £80.49 billion, with a dividend yield of 1.96 per cent.

The result of the race to lead the Conservative party will not be announced until July 27, but the high probability that the next prime minister would be open to a no-deal Brexit has helped to generate a decline in the Pound, causing anxiety amongst many domestically focused companies.

The UK market still presents some good opportunity for investors who are looking for quality companies at attractive prices as the stocks are already under-owned and undervalued by international institutional investors. The FTSE Local UK index, which includes groups which generate not less than 70 per cent of their revenue in the UK, has underperformed the FTSE 100 by 20 per cent since the day of the referendum.

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