Jeremy Corbyn is a self-described socialist who says he will raise taxes and nationalize industries if his Labour Party wins Thursday’s U.K. election. Some investors hope he does win.

The seemingly counterintuitive choice—markets typically welcome Conservative Party victories—says much about how Britain’s vote to leave the European Union has upended the way investors view U.K. politics.

Many investors say that Brexit will turn out to be negative for the British economy, throwing up tariffs and obstacles to trade and hurting the country’s large finance industry. The Conservative’s harder line on Brexit means that some of these fund managers argue their investments, in the longer run, will do better if Mr. Corbyn’s Labour win or end up leading a coalition government with pro-EU parties.

The U.K. is heading to the polls for the third time in two years after Prime Minister Theresa May called a snap election for June 8. WSJ's Niki Blasina explains why now, what's at stake and what the election means for Brexit. Photo: Getty Images.

“If you see a Corbyn win, emotionally you’d see a big trade off in the pound but afterwards it may stabilize and do a bit better if there is a sense Corbyn can negotiate a softer Brexit,” said Mark Dowding, co-head of investment-grade debt at BlueBay Asset Management. “I think Corbyn would probably get an easier ride out of our European partners,” he added.

To be sure, while Mr. Corbyn has made significant ground in polls most investors still believe that the Conservatives will win a majority. In mid-April, some polls gave the Conservatives a lead of more than 20 points over the Labour Party. That has narrowed to 8 points, according to a Wall Street Journal average of opinion polls.

Parliamentary Popularity / Following a vote to leave the European Union, the Conservative Party's popularity has risen during the leadership of U.K. Prime Minister Theresa May. Party support, 14-day moving average Source: WSJ average of opinion polls from BMG, ComRes, GfK, ICM, Ipsos Mori, Kantar TNS, ORB, Opinium, Panelbase, Survation and YouGov

A large Conservative majority is also viewed as being positive for markets. But that is also, in part, down to Brexit, because investors believe a big win would shore up Prime Minister Theresa May’s ability to push back against Conservative lawmakers who demand an immediate and complete break from Brussels.


There are some investors who also see a Labour victory in any iteration as being the worst option for markets. The party’s election manifesto promises to hike income tax on anyone earning over £80,000 ($103,200) a year while nationalizing the country’s rail companies, water and energy utilities and postal service provider, the Royal Mail Group. Mr. Corbyn also has no government experience and is considered a maverick on foreign policy issues.

Given this, analysts predict an immediate fall in the pound should he win and big declines in U.K. shares, particularly utilities. Labour’s plans for increased fiscal spending could also send the yields on U.K. government bonds higher if, as expected, it pushed up inflation, driving the Bank of England to nudge up interest rates earlier than expected.

Sebastian Raedler, an equity strategist at Deutsche Bank, said not a single one of the analysts in his bank’s equity research team say their sector would do well under a Labour government.

But if the ruling Conservatives lose the election that reduces the “Brexit crash risk,” said Mr. Raedler, whose bank believes that a Labour victory could be positive for sterling over the medium-term following an initial selloff.

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“People find it hard to swallow that if you get someone that has an economic agenda that sounds like a throwback to the 1970s. that could be positive for the currency,” he said.


The ’Tories’ have said they would pull Britain out of the EU’s single market, the country’s biggest trading partner, given that Brussels demands the sort of free movement of labor that many Brexit voters rebelled against for access. Brexit supporters say that whatever happens the EU will want to keep trade flowing with Britain, a major buyer of its goods, and the country will also be able to carve out new deals with trading giants like the U.S. and China.

But many in the market aren’t convinced and are worried of a sudden lurch out of the bloc under the Conservatives.

“What really matters for markets and U.K. domestic demand is the prospect of crashing out” of the EU, said John Wraith, a rates strategist at UBS.

Labour has said it would press ahead with Brexit. But the party is also expected to stay in the single market and be more welcoming to foreign workers, which many businesses want.


The best case scenario, says Kallum Pickering, economist at Berenberg Bank, would be a Labour minority government in which the party becomes reliant on the Liberal Democrat and Scottish National Party, both of which want to reverse the Brexit process.

“As long as Corbyn is a lame duck on economic policy, that is fine,” he said.

Some investors think it is simply too difficult to call how the market will react. Julian Howard, head of multi asset solutions at Swiss investment manager GAM, said he is “loath to predict how the market will respond” and has hedged any currency risk in sterling clients’ portfolios.

“It’s so variable. the market just wants the certainty now,” he said.

Write to Christopher Whittall at christopher.whittall@wsj.com, Alistair MacDonald at alistair.macdonald@wsj.com and Jon Sindreu at jon.sindreu@wsj.com


Corrections & Amplifications

The Labour Party’s election manifesto promises to nationalize the U.K.’s rail companies, water and energy utilities and postal service provider, the Royal Mail Group. An earlier version of this article incorrectly said it wanted to privatize these industries. (June 7, 2017)