What's going on?
Elections can be a tricky time for investors, as political parties vying for office make big promises that might not actually happen. And one of Britain’s frontrunners did just that late last week, announcing that it’d partly nationalize telecoms company BT if it were to win.
What does this mean?
BT was owned by the UK government until the late eighties, after which its initial public offering allowed anyone to buy and sell its shares. Nationalization would mean taking the company out of public hands and putting it back into the government’s, like Saudi Arabia’s national oil company, Aramco.
In this instance, the conversation is around a partial renationalization of BT – specifically its Openreach business, which installs and maintains the cables that deliver internet services across the UK. That could hurt BT: Openreach contributed 10% of BT’s revenue last year, and a quarter of its profit. But it might benefit the Brits: if Openreach were government-owned, it could provide the entire country with free broadband.
Why should I care?
For you personally: The nationalization anthem.
BT’s investors – including the millions of people who own shares in the company directly or through their pensions – may worry they’ll be short-changed. The current proposal is to pay them with government bonds, which are safer than stocks but don’t offer as much potential for big gains. And by cleaving off a quarter of BT’s profit, prospective investors may be less willing to pick up the phone and dial into what’s left of the company itself.
For markets: Not clear what investors think.
BT’s stock initially fell 3% after Friday’s announcement, likely because investors are umming and ahhing about the company’s future. But that decline reversed somewhat throughout the day. On the one hand, that could suggest investors aren’t altogether optimistic about the political party’s chances of success in the upcoming vote. On the other, it could just reflect the fact that what happens next – as is often the case politically – is anyone’s guess.