It’s hard not to feel sorry for Theresa May. She does nothing and she’s out of touch; she takes action and she’s panicking. The last politician to be caught in this apparently no-win situation was Alistair Darling as Chancellor of the Exchequer, and he managed to sort out an almighty financial mess. The Prime Minister has so far found a similar triumph elusive.
Her latest wheeze has been to conjure up a meeting of minds with Labour leader Jeremy Corbyn, though that has gone down badly with all those who had been exhorting her to reach out across the chamber. The big danger is that the move raises Corbyn’s stature and improves his chances of becoming Prime Minister.
That prospect has to be taken seriously – and it is not an attractive one for investors. A number of companies, such as utilities, have already seen their shares slip under the threat of nationalisation. This week Steve Lerpiniere, one of my Twitter followers, raised the issue in the context of a trading update from bus and train operator Stagecoach (SGC).
Let’s say, first of all, that as usual the revenue figures covering the year to April 27 were patchy. The best bits were Virgin Rail, up 6.7%, and regional buses, 3.4% ahead. London buses and the rest of UK rail were sluggish, while North America continued to slide backwards. The good news is that the sale of the North American operations should go through soon. Good riddance at last.
So will a Corbyn government stop Stagecoach in its tracks? With Labour as badly split as the Conservatives over Brexit, I can’t see Corbyn commanding a working majority after a snap poll. Only once, in 1997, has Labour moved from Opposition to stable government in a single election.
If he does pull it off, will he be able to find the money to buy the companies he wants to bring under government ownership? As we discovered during quantitative easing, there really is a magic money tree. Pumping money into the economy to prop up essential services could be presented post-Brexit as a sensible, vital policy to save the day.
Could Nationalisation Become Mainstream?
Steve also pointed out, correctly, that only the Attlee government carried out wholesale nationalisation. Otherwise the policy has been confined pretty much to the party manifesto.
However, circumstances change. In the 1960s it was accepted by Labour and Conservative politicians alike that some parts of the economy such as utilities, steel and coal should be in public ownership. Within 30 years both sides embraced privatisation with equal enthusiasm. Given public discontent over train services and energy costs, nationalisation could indeed become mainstream again.
In my view investors should bear in mind the possibility of a Labour government because of the impact it would have on share prices. Even if it failed to carry out a nationalisation agenda, its very existence would weigh on those sectors in the firing line.
However, as Steve commented, any fall in share prices prompted by nationalisation fears also creates a buying opportunity for those who think it will never happen. I’m with him on this point, which is why I am retaining my holding in United Utilities (UU.).
Unless an election is forced very quickly, the Conservatives will be fighting under a new leader, and a change of leadership usually provides a boost in the polls. Labour will be led by a man who does not command the support of the majority of his parliamentary colleagues.
In my view there are far more important things to worry about, most notably the decline in the growth rate of the global economy, particularly the slowdown in Europe. More than ever, investors should favour solid companies earning consistent profits in sectors that never go out of fashion. If that includes possible nationalisation targets – such as utilities – so be it.
Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice, nor are they the opinions of Morningstar.
