Housebuilders and pub companies are among stocks to watch when U.K. Chancellor of the Exchequer Rishi Sunak makes his budget announcement on Wednesday, a speech that is set to throw light on the gaping hole in the country’s finances wrought by the pandemic.
Press reports have suggested Sunak will announce more specific support for the housing sector and the bruised hospitality trade, in addition to an extension to the furlough scheme for Britain’s masses of idle workers.
A bigger deal to the domestic equity market would be any move to increase the rate of Corporation Tax, although according to Goldman Sachs Group Inc. this isn’t likely until life returns to some form of normality. Bumping the tax on companies up 6 percentage points to 25% to bring it into line with other countries could spark a fall in U.K. stocks and shave up to 4% off the blue-chip FTSE 100 index’s market capitalization, the bank has forecast.
“What will matter more for U.K. stocks is the success of the Covid vaccine rollout and the eventual unlocking of the economy, which is progressing well,” Goldman strategist Sharon Bell wrote in a Feb. 26 note.
Sunak will deliver his speech at around 12:30 p.m. in London. Here’s how the contents of his red briefcase could impact shares:
Housing, Banks
It’s been speculated for months that Sunak would extend the holiday on stamp duty -- a tax payable if you buy a property or land over a certain price. The break announced as the pandemic struck not only boosted homebuilders like Taylor Wimpey Plc and Persimmon Plc, but also estate agents and property portals like Foxtons Group Plc and Rightmove Plc.
The stimulus kept the mortgage market buoyant even as London rents plunged and workers fled the city, aiding banks like Lloyds Banking Group Plc and NatWest Group Plc, who compete in residential lending. Still, the strength of the housing market “raises questions as to whether this is needed,” Dean Turner, economist at UBS Global Wealth Management, said of a potential extension of the stamp duty holiday.
Housebuilders’ stocks already got a boost on Monday after the government announced a plan to bring back 95% mortgages to help aspiring homeowners who have smaller deposits. If the measure isn’t restricted to new builds, that could also spur robust repair and maintenance demand, in turn driving sales at building merchants such as Travis Perkins Plc and Grafton Group Plc, Citigroup Inc. analyst Ami Galla wrote in a note Monday.
Hospitality, Retail
U.K. retail and pub stocks gained this week after the government said it would provide grants to help nearly 700,000 businesses ahead of a gradual reopening of non-essential stores and outdoor hospitality from next month.
Sunak is likely to extend a reduced rate of value-added tax to further help operators recoup some of the money lost to closure, Berenberg analyst Owen Shirley said in a note Monday. There could also be another holiday for “business rates” -- a tax on all commercial property -- which is a significant burden for chains with many sites like JD Wetherspoon Plc.
Along with Wetherspoon, keep an eye on pub peers Mitchells & Butlers Plc and Marston’s Plc, as well as Wagamama-owner Restaurant Group Plc. The latter, which also owns the Garfunkel’s and Frankie and Benny’s brands, may also benefit from programs to reinvigorate the arts sector, given it has a number of locations near theaters and cinemas.
Retailers such as Marks & Spencer Group Plc and JD Sports Fashion Plc should be watched too, though the outlook for those stocks is more likely to be impacted by reopening progress.
Infrastructure
UBS’s Turner advises watching for any surprise spending announcements from Sunak in the form of infrastructure projects to boost the government’s “levelling up agenda” or those that promote the “greening” of the U.K. economy ahead of November’s COP26 climate change meeting. Investors might keep an eye on construction stocks such as builders Balfour Beatty Plc and Kier Group Plc, and Irish materials supplier CRH Plc.
Sin Taxes
Sunak is likely to lift taxes on tobacco, according to The Sun newspaper. The stocks to watch are British American Tobacco Plc and Imperial Brands Plc, though the market reaction may be muted given tobacco price tax increases have long been used in the U.K. in attempt to deter people from the habit.
Any mention of a possible reduction in the duty charged to pubs on alcohol sales in relation to that charged to supermarkets could have a marginally positive impact for drinks firms like Guinness-maker Diageo Plc, as well as pubs. Prime Minister Boris Johnson has said such a review is being conducted, though Berenberg’s Shirley doesn’t anticipate any change being announced in the budget.
Capital Gains Tax
Sunak may soon consider an increase in capital gains tax -- a charge on the profit made when you sell an asset -- according to Goldman’s Bell.
The strategist expects the implications for stocks to be minimal, as roughly 60% of U.K. shares are held by non-U.K. investors, who usually face tax in their own jurisdictions. However, such a move may affect market sentiment and could mean investors are discouraged from selling strongly performing assets, aiding momentum trades over value, she said.
Keep on eye on the stock prices of share trading platforms like Hargreaves Lansdown Plc and AJ Bell Plc if something is announced.
Listing Revamp
Sunak is set to unveil proposals to revamp stock exchange listing rules as the U.K. seeks to boost the City of London post-Brexit, Bloomberg reported Tuesday. London Stock Exchange Group Plc is the main stock to watch, while smaller firm Aquis Exchange Plc could also be impacted.
— With assistance by Joel Leon, Ksenia Galouchko, and Lisa Pham