The resignation of UK Prime Minister Kier Starmer on Monday (22 June) means that Andy Burnham is in prime position to take over the role in July. Of course, we’ll have to wait and see if any other contenders come forward, but I believe he’s the overwhelming favourite.
When it comes to how the market could react, the FTSE 250 is likely going to be more volatile. But why?
Mapping out scenarios
To be clear, I don’t believe we’ll see much initial reaction when/if Burnham gets confirmed as PM. I think most of this has already been factored into the stock market. However, the real move will come when he lays out his policy plans.
For the FTSE 250, the reaction will likely be high, as it’s home to more domestic companies that just trade in the UK than the FTSE 100. If investors conclude Burnham means higher business taxes, more regulation, rent controls and higher wage pressure (to name just a few points), stocks could fall. That would matter particularly for property stocks, as well as consumer discretionary firms such as pubs and retailers.
On the flipside, Burnham’s political brand isn’t purely anti-business. In fact, as Mayor of Greater Manchester, he built credibility in regional development, focusing on transport and infrastructure that helped the local economy.
If he appoints a market-friendly Chancellor and avoids broad-based corporate tax hikes, the FTSE 250 could rally. Again, this is likely more sensitive than the FTSE 100 because we’re talking about a credible domestic growth agenda that would naturally see investors rotate into domestic companies.
One to watch
One company that could do well in the second scenario is Keller Group (LSE:KLR). The stock’s up 80% in the past year, fuelled by record financial results. Back in March, the latest report put the strong numbers down to “sustained improvement in operational and financial performance and the Group’s geographic diversity, sector agility and resilience”.
When looking at the company through a Burnham lens, it could do well with a big push in infrastructure spending. Keller does ground engineering, so it’s the first company in before homebuilders or other contractors take over a site. So if we get a government push in this area, it could win a lot of contracts for foundations and major civil works.
It’s appealing as it’s less dependent on house prices than builders, and also has global revenues. So even if the political angle doesn’t work, it’s not the end of the world.
In terms of risks, it’s true that any infrastructure project takes years to plan, start, and finish. So the boost to Keller Group could take a long time to filter down to profits. Yet even with this point, I still think the company’s in a good spot and could be considered by those who think the new PM could push this agenda point.
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Jon Smith has no positions in the shares mentioned.
