Plenty of bargain British equities in the January sales

published 18 January 2019

930_MW_P04_Markets_Bottom — UK equities: Hold your nose and jump in

To overseas investors, Britain may seem "like a place where the lunatics cannot decidewho should run the asylum", says Neil Collins in the Financial Times. Investors have pulled billions out of UK equity funds since the Brexit referendum in June 2016. This spells opportunity for long-term investors.

Over the past ten years, says Jonathan Jones in The Daily Telegraph, the S&P 500 returned 305.3% while the FTSE All Share returned 142.5%. But in the next ten years, it should be a different story. Keep in mind, says Tom Stevenson in the same paper, that long-term returns depend on the price you pay when you buy, and however much turbulence there may be in the short term amid a possible no-deal scenario, that price "is now low enough for investors to hold their noses and jump in".

Shares in the FTSE 100 cost just ten or 11 times expected earnings on average. In the US, meanwhile, the latest price declines have done nothing to change the fact that stocks are historically overpriced, which militates against healthy long-term returns. Investors should take a particularly close look at UK companies' growing dividends, says Ian Cowie in The Sunday Times. Fears about our economic prospects have caused fund and share prices to fall, pushing up yields. The ten biggest British businesses offer yields of about 5% to investors "brave enough to buy today". The yield on the FTSE 100 currently stands at 4.3%, which is compelling in an "environment of lower-for-longer interest rates", says Stevenson in The Daily Telegraph. There are plenty of "bargains in the January sales", adds Collins. House builders have "solid-looking balance sheets". The UK's largest property company, Land Securities, is at a seven-year low, while the shares of water and electricity companies yield 6% or 7%.

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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.