Intoxicated by the prospect of an economic recovery, markets everywhere not just in Britain have been selling off or neglecting defensive stocks, giving investors an opportunity to pick them up on the cheap. Bloomberg.com points out that banks and industrial companies have spearheaded the rally in the MSCI World index since March, while the MSCI World Utilities index is down by almost 9% this year. On a p/e of around 13, it's now trading at its biggest discount to the World index in five years and it yields 5.1%, the most since 1995.
Citigroup notes that since the end of last year, pan-European defensive stocks have slumped from a 70% premium to cyclicals to a 20% discount. They now look "cheap in absolute and relative terms". The prospective yield on European telecoms groups is 80% higher than the rest of the market, while UK pharma is at its lowest historic p/e (under ten) since the 1970s.
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