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The FTSE 250 is more closely tied to the UK economy than the FTSE 100 is. So it’s no surprise the smaller index responded more strongly to the Autumn Budget this week.
Within the index, though, some companies naturally stand to benefit more than others. And a couple in particular have caught my attention over the last few days.
Greggs
It’s hard to think of a company more exposed to UK consumer spending than Greggs (LSE:GRG). The stock has crashed in the last 12 months, but it bounced after the Budget.
The hope is that increases to the national minimum wage might give consumers a bit more disposable income. And that should help revive some really poor like-for-like sales numbers.
Weak consumer sentiment, though, isn’t one thing that has been ailing the company. The firm’s management has attributed the faltering results to various weather conditions.
If they’re right, that could be an ongoing problem. There isn’t really anything the company can do about this and it’s not going to be sorted out in any Budget, either.
My suspicion, though, is that weather will somehow start to matter less if consumer spending improves. And this might cause the share price to do the same.
The real issue with the stock, in my view, is that it was grossly overpriced in January relative to its growth prospects. After a 45% decline, though, I think it’s worth considering.
IG Group
There was a lot of speculation before the Budget about what might happen to ISAs. And the resulting reform was an obvious benefit to IG Group (LSE:IGG).
From April, the Cash ISA annual contribution limit for UK savers under 65 is going to fall to £8,000. So anyone wanting to use the full £20,000 allocation is going to need a Stocks and Shares ISA.
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That’s a good thing for providers like IG Group and it’s therefore no surprise to see the stock climb 10% in response to the news. But the market might have been a bit hasty here.
A couple of things are still unclear, from my perspective. One is whether the proposed moves will be enough to generate a meaningful bump in stock market participation.
Another is what happens if they are. If UK savers start switching to investing in a meaningful way, there’s a real chance this could attract more competition, especially from larger banks.
While IG Group does have some unique strengths, more competition wouldn’t be a good thing. So I’m not looking to follow other investors into this one at the moment.
Budget winners
To my mind, the FTSE 250 is clearly the place to look for winners from the Autumn Budget. And the stock market seems to have decided that both Greggs and IG Group are the ones.
In both cases, I understand the reasoning – but I’m not convinced. I think Greggs is worth considering, but that’s because of how far it’s fallen this year, not the Budget.
With IG Group, I’m wary that investors might be overestimating the importance of the latest news. In my view, the real winners from the Budget might be elsewhere in the FTSE 250.
