After a year of indecision, UK investors appear ready to embrace an emerging recovery. Riding high on record global equity price gains since mid-2014, UK equity prices now offer the best value in the world. British stocks were up on the back of a potential breakthrough against SARS and investors hoping to ride an optimistic wave about a possible vaccine against the coronavirus. The FTSE 100 index of leading British share issues was up more than 6 percent in the month of January this year.
For years, financial experts have called for Britain to transition away from its traditional focus on manufacturing, in favor of boosting its small-company stocks. The country’s recent move toward becoming a global finance center is in line with that strategy. European funds are among the most popular investment styles in the United States.
No one with a balanced view of the UK economy can doubt that investors now have added clarity with regards to the composition of the UK economy. Its share of world GDP remains at about 5%. The long-run outlook for the UK’s trade and productivity has improved and is encapsulated in better corporate and government balance sheets.
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The UK’s stock market is noticeably outperforming the U.S. right now, but, interestingly, its performance has recently coincided with Britain’s unexpected exit from the European Union (EU). The unusual economic news is sure to lift stocks, but the UK index is doing particularly well as a bellwether for Brexit altogether as it reflects massive uncertainties about what happens next. In short, the FTSE 100 is a lot bigger than you think. The FTSE 100’s strong showing is partly because of expectations that the British government will announce an economic stimulus package to strengthen the economy, but it also reflects rising confidence in the business sector. The FTSE 100, which includes all British companies listed on the London Exchange, is up more than 1.7 percent so far this year, while the S&P 500 has gained nearly 3 percent and the Stoxx Europe 600 index has risen 5 percent. That makes the FTSE 100’s gain about one-third higher than its U.S. counterparts.
While the UK stock market was particularly badly hit by the Covid crisis, rather than being knocked off its perch by the setback it has reinvented itself as a global financial centre. Indeed, the FTSE 100 has managed to outperform the broader European markets over 12 months even where it has been beaten handily by the US market. So while it is still more expensive than US markets on a valuation basis, its valuations are now absolutely beaten by all of those European markets.
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