What would Andy Burnham as prime minister mean for UK stocks?

Assuming no Labour MP throws their hat into the ring to challenge him, Andy Burnham looks set to be the UK’s next prime minister – and he could assume the office as soon as 17 July.

You might be wondering what a Burnham administration could mean for your money, in particular your investments. After all, the UK’s stock market has had an eventful year so far: the FTSE 100 reached its all-time high of 10,935 on 27 February, just before the Iran war broke out. It fell off sharply over the following weeks, and while much of the lost ground was recovered by the end of March, it still has not regained its late February highs.

UK stocks have been undervalued compared to international counterparts for some time, and while that’s a positive for value-focused investors, the hope is that something will, at some point, catalyse a revaluation so their prospects rise.

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Could the UK’s seventh prime minister in 10 years be that catalyst, or is it more unwelcome news as far as the UK’s stock market is concerned?

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“If Andy Burnham does get the keys to Number 10, he'll face a supremely tricky balancing act,” said Susannah Streeter, chief investment strategist at wealth manager Wealth Club.

The apparent prime-minister-in-waiting outlined his vision for the country on 29 June in a speech that majored on strengthening regional autonomy, but was otherwise light on detail.

“Investors will be looking for a clearer roadmap showing how growth can be boosted sustainably without unsettling bond markets or putting further strain on already stretched public finances,” said Streeter.

How UK stocks have reacted to the prospect of prime minister Burnham

There is widespread skepticism about how effectively Burnham can meet these challenges. Equally, it is yet one more source of turbulence for a market that could probably do without it.

“I think what the markets would like to see is some stability,” Jo Rands, portfolio manager on UK equity income at asset manager ClearBridge Investments, told MoneyWeek.

It is notable, though, that UK stocks have not reacted strongly (in either direction) since Keir Starmer announced he would step down, and Burnham emerged as his almost nailed-on replacement.

While some sectors have experienced jitters – Rands highlighted potential nationalisation concerns impacting the utilities sector – on aggregate there has been little reaction. The FTSE 100 gained 0.7% on 22 June, the day Starmer announced his resignation, and rose a further 0.6% between then and 30 June.

“The markets have been thinking about this potential change for a while,” said Rands. “Last year we were talking about the risk for UK equities thinking about the local elections, and the implications that could have on the market. So it’s been rumbling away in the background.”

Uncertainty itself, in other words, was already priced in. What is still not certain – and will likely have the greatest impact both on the UK economy and UK stocks – is who Burnham chooses to replace Rachel Reeves as chancellor.

“A week ago, when you looked at the prediction markets, Wes Streeting was the favourite,” said Rands. “Markets quite liked that.” But Ed Miliband appears to have become the more likely candidate in the meantime, and the markets are less keen on the prospect of him in number 11, according to Rands.

Whoever takes the role will be the primary person responsible for executing the precarious economic balancing act that Burnham will face – an unenviable task.

Why UK stocks offer diversification

The good news is that the UK stock market is not the same thing as the UK economy. The large cap stocks of the FTSE 100 are predominantly global companies who derive their revenue from all over the world – so they can perform strongly even if UK growth slows.

“A lot of people conflate UK equities with the UK economy,” said Rands, adding that it’s often more the mid- and small-cap end of the UK market (accounting for around 12% of its total value) that are heavily exposed to the domestic economy.

UK stocks also offer rich sources of diversification. Compare the top ten holdings of the S&P 500 and the FTSE 100:

*Based on weightings in the Vanguard S&P 500 UCITS ETF (LON:VUAG) and the Vanguard FTSE 100 UCITS ETF (LON:VUKG), which track the respective indices, as of 31 May.

Five of the S&P 500’s top ten holdings are designated as Information technology companies – with two of the other five being represented by Alphabet’s two different share classes. But given that all of the exceptions are members of the ‘Magnificent 7’ group of AI-relevant stocks, it’s fair to say that all of them are tech companies in a fundamental sense, if not according to their official designations.

The FTSE 100, meanwhile, has six different sectors included in its top ten companies, none of which include more than two companies.

“Global indices are predominantly US, which are predominantly tech,” said Rands. “In the UK, it’s spread across a number of different sectors.”