Idea of the Day: Severn Trent - trading a Labour victory

As the UK election polls narrow, and some even put a Conservative victory within the margin of error, traders need to think about how a win for Jeremy Corbyn’s Labour party could impact financial markets and individual UK companies.

What: As the UK election polls narrow, and some even put a Conservative victory within the margin of error, traders need to think about how a win for Jeremy Corbyn’s Labour party could impact financial markets and individual UK companies.

The Labour manifesto pledged to nationalise some key UK industries including Royal Mail, utilities companies and rail franchises. One company that could be under threat of nationalisation under a Labour government would be Severn Trent, the water, waste and utility company. If Labour does win next week then we would expect to see a sharp drop in its share price.

How: This stock has already fallen some 3% since reaching a record high on 24th May. We believe that further signs Labour could win this election, or if the polls point to a hung parliament, then we could see further losses potentially back to 2,406 – the 50-day moving average (the stock is trading at 2,500 at the time of writing). Other key levels of support include: 2,374 – the 38.2% Fib retracement of the December low to May high.

Obviously if the polls shift back in the Conservatives’ favour in the next week then we could see a recovery in Severn Trent’s share price and a return to test the record highs around 2,575.

Chart 1: 


Source: City Index and Bloomberg 

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