In today’s issue…

  • The sector seen as benefitting most from Labour’s victory
  • The surprising reality of the markets
  • Who are they calling the “Shadow Prime Minister”?

Everyone knows it’s important what stocks you pick.

But what sectors you pick from might matter even more…

One sector that is poised to benefit from the election result is green energy.

The new Labour government is much more supportive of the energy transition than the Conservative predecessors, but so far this hasn’t been reflected in the financial markets. So what’s going on?

To start, let’s look at what Labour have said and done so far. They’ve talked about launching GB Energy, and they want to completely decarbonise our grid by 2030, a policy that goes hand in hand with National Grid’s recent £7 billion capital raise and £60 billion grid investment plan.

Within its first week in power, Labour has initiated a £7 billion spending programme on things like green steel, hydrogen, carbon capture and battery factories. Labour has also already ended the block on onshore wind farm construction. After just a few days in government, they are already making good on their election promises.

Labour is hoping that by leading with investment in these sectors, the private sector will follow in with more. This is based on an economic concept known as “crowding-in” (i.e. the opposite of crowding out). Labour hopes to catalyse £3 of private investment for every £1 it invests.

On oil and gas, specifically regarding our North Sea exploration and production companies, Labour has been equally clear. The windfall tax imposed on oil and gas companies will be increased further. And, perhaps more importantly, the tax relief that these companies got (if their profits were invested back into UK projects) will be retracted, giving these companies a double tax hit after an already challenging couple of years.

It seems clear to all, then, that Labour’s election win will be a big boost for the UK’s energy transition, and you can see clearly that its negative rhetoric on oil and gas has caused share prices in that sector to fall.

The big change has come since 22 May, the day Sunak called an election everyone expected Labour to win.

The shares for Serica Energy have fallen around 20%…

Source: Koyfin

And for Jersey Oil & Gas shareholders it’s even worse. It’s suffered a gut-wrenching 40% fall in just the seven weeks since Sunak called the election on 22 May.

Source: Koyfin

So you would think, in reverse, that the share prices for British clean tech stocks would have done the reverse.

Not so fast…

TRIG, The UK Renewables Infrastructure Group, is level with where it was on 22 May:

Source: Koyfin

And Ricardo plc, a UK-focused sustainable engineering consultant, is also flat since then:

Source: Koyfin

Meanwhile, AFC Energy, a British company that makes hydrogen fuel cells for the maritime industry, is actually down since that point. That’s despite hydrogen being specifically named as a recipient of funding by the government.

Source: Koyfin

It’s certainly puzzling why oil and gas companies have clearly reacted to the change in government, but clean energy firms have not. But there are some possible explanations.

The first is that green energy as a sector is struggling to rebound after a very hard couple of years. It soared in 2020 and 2021, but then crashed in 2022 and 2023.

Momentum is very much against it; many investors have been burned and are reluctant to return; and a lot more scepticism is being applied to the future ambitions and promises of clean tech companies.

This could outweigh the impact of the new government’s policies in the short term, although I fully expect that continued growth in end markets and low starting valuations make it an attractive sector.

Secondly, let’s not forget that since 22 May, we’ve also seen a political swing to the right in the European Parliament elections that could also spell bad news for Europe’s net zero ambitions.

So weak momentum and European politics could explain why investors aren’t fully buying into Labour’s plans.

But there is a third reason too.

Governments all over the world having been increasing their debt levels over the past 15 years, and especially so since the Covid pandemic hit.

These high debt levels act as a constraint on spending. The UK has reached a point where many people think we cannot justify more borrowing. If we want to spend, we have to find ways to raise more money – through growth and taxes, or cuts in other areas.

Liz Truss, who has famously declared that we have “ten years to save the West”, but couldn’t even save her South West Norfolk seat, gave us the best example of what happens if you attempt reckless spending. She tried to increase spending while cutting taxes, and the financial markets revolted, as interest and mortgage rates soared.

She has certainly not covered herself in glory in the past few years but, on one issue at least, my colleague Nick Hubble thinks she might be onto something. That issue is who she blames for her removal as prime minister (you might not be surprised to read that it’s certainly not herself).

Truss says that this figure – who Nick calls the Shadow Prime Minister – is the one who “fired” her.

And Nick thinks that this person is the one who really controls the country.

In that sense, could this person be the real reason why clean energy stocks haven’t rebounded with the Labour government’s ambitious spending plans?

I shouldn’t be the one to elaborate on this, I’ll leave that to Nick…

He’s done months of research on the power dynamics at work here.

Power dynamics that, he says, make the recent election results irrelevant.

To see what I’m talking about, let me hand you over to the man himself:

Click here to hear from Nick and see exactly what’s going on.

Until next time,

James Allen
Contributing Editor, Fortune & Freedom