British stocks are unloved and undervalued

published 14 September 2018

913_MW_P06_Markets_Bottom — Brexit jitters spell opportunity for bargain hunters

Global investors have been selling UK stocks at the fastest rate since May 2016 as fears of a "no deal" Brexit have spread. According to the latest Bank of America Merrill Lynch survey, 28% of fund managers are underweight in UK stocks.

"UK valuations are at the bottom end of a range of metrics," according to John Baron in the Investors Chronicle. But are "UK stocks unloved for good reason"? asks Mark Atherton in The Times. "Or are those who areshunning them missing abuying opportunity?"

While the weakened pound has been positive for UK stocks with large international earnings over the last two years, these stocks now look pricey. "It's certainly not the best time to own a tracker fundor to indiscriminately pile into the big companies that dominate the index," Maike Currie, investment director atFidelity International told The Times. Markets famously don't like uncertainty and investors are put off by the possibility of aBrexit disaster.

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But Alasdair McKinnon, manager of the Scottish Investment Trust, says negativity towards UK stocks looks overdone and there are many sectors where valuations look cheap. While the US stockmarket is trading at 17.7 times earnings, the UK is trading at 13.5 times. What's more, the FTSE 350 index is yielding close to 4%, while European stocks only yield 3%, and US stocks a mere 2%.

In terms of sectors, Nick Kissack, manager of the Schroder UK Alpha Plus fund, favours financials, resources and companies selling basic consumer goods. He says: "Brexit remains a concern, butis providing the opportunity to buy quality domestic companies at attractively cheap prices." Among those McKinnon likes are retailers and commercial property stocks including Tesco, M&S and British Land.

Marina Gerner is an award-winning journalist and columnist who has written for the Financial Times, the Times Literary Supplement, the Economist, The Guardian and Standpoint magazine in the UK; the New York Observer in the US; and die Bild and Frankfurter Rundschau in Germany.

Marina is also an adjunct professor at the NYU Stern School of Business at their London campus, and has a PhD from the London School of Economics.

Her first book, The Vagina Business, deals with the potential of “femtech” to transform women’s lives, and will be published by Icon Books in September 2024.

Marina is trilingual and lives in London.