George Osborne’s Autumn Statement was “a masterclass in budgetary theatrics”, with an “amazing cuts U-turn”, according to gushing responses in the press today.
It might have made for good politics – and the chancellor must have thought that Christmas had come early when his opposite number whipped out a copy of Mao’s Little Red Book.
But from an investment point of view, there were two big winners from the statement – housebuilders and defence stocks.
Housebuilders
Osborne’s posturing in the run-up to the statement pointed strongly to bullish news for housebuilders and the construction sector.
At the Tory party’s recent conference in Manchester, he used the word “build” no less than 25 times. Shares in Taylor Wimpey, Persimmon and Barratt all ran-up sharply ahead of yesterday’s spending review.
In some ways, Osborne didn’t disappoint. Yesterday, he beat his previous record by using the word “build” at least 27 times. And he backed it up with concrete measures, promising to build 400,000 new affordable homes by 2020, bolstering support for first-time buyers and doubling the housing budget to £2bn (to put that into context, Osborne also pledged £250m to filling potholes).
But shares in the housebuilders were hit by his surprise introduction of a higher rate of stamp duty on second homes and buy-to-let properties. Berkeley Group, which is focused on new properties in London and the southeast, was the hardest hit.
“There was a degree of anticipation for a bigger fillip to house-builders”, said Julian Chillingworth, chief investment officer at stockbroker Rathbones, “so short-term traders have taken profits, which is why we are seeing the sector come off”.
However, shares have rebounded in early trading this morning. Overall, the policy measures are being taken as net positive – which seems to make sense, given that any slip in buy-to-let demand should be taken up by first-time buyers.
“First-time buyers are likely to benefit from the plans”, said Laith Khalaf, a senior analyst at Hargreaves Lansdown, “but so are the developers, who are going to going to build the hundreds of thousands of starter homes ordered by George Osborne”.
Defence stocks
Following this month’s attacks in Paris, security was presented as a key plank of Osborne’s agenda. In stark contrast to murmurs of pacifism on the opposition front benches, he lifted the defence budget from $34bn today to $40bn by the end of the current parliament in 2020.
Defence giant BAE Systems, which has surged nearly 10% since the Paris attacks, continued to move higher, while Rolls-Royce, which has been whacked by a string of profit-warnings this year, bounced by more than 3%.
Chemring, meanwhile, which specialises in battlefield flares and decoys, also ended the day higher. (We tipped a number of defence stocks in the 30 October issue of MoneyWeek magazine – if you’re not already a subscriber, sign up here to read the piece).