Are British stocks set for a Boris bounce?

UK stocks have been out of favour since the EU referendum. That opens up an opportunity for value investors, and we could even see a "Boris bounce".

London bus © iStockphotos

UK equities are unloved and underrated

Could UK stocks be in line for a "Boris bounce"? asks Sally Hamilton in The Mail on Sunday. They have been "stubbornly out of favour" ever since the referendum, returning just 19% over three years compared with 43% for American equities. A "triple cocktail" of fears about a no-deal Brexit, a Corbyn government and wider political uncertainty has depressed returns. Yet that opens up an opportunity for value investors.

The murky outlook has also sent the pound to a two-year low against the dollar. A falling currency deters foreign investors. The weak pound is not all bad news, however. With so many FTSE 100 companies drawing revenue streams from overseas Societe Generale estimates that 63% of the blue-chip index's sales are generated outside of Europe their profits are flattered in sterling terms. The poor exchange rate also simplifies the investment calculation for British investors. As Jason Hollands of Tilney tells The Mail on Sunday, "their pound won't go as far in other stockmarkets such as the US", which is another reason to keep funds at home.

MoneyWeek has been pointing out for some time now that UK stocks look cheap enough to promise healthy long-term returns. The cyclically adjusted price/earnings (p/e) ratio of 16 is cheaper than most major markets and developed Europe as a whole. Michael Mackenzie of the Financial Times also cites Credit Suisse research showing that the market's forward p/e ratio of 12.75 is almost five points lower than the S&P 500's. Another sign that UK stocks are a bargain with plenty of upside is a high dividend yield of 4.2%. Reinvested income is crucial to long-term returns. Investors hoping to tap into the miracle of compounding would do well to buy British.

Recommended

Stockmarkets shrug off turbulence
Stockmarkets

Stockmarkets shrug off turbulence

Stockmarkets have hit their first bout of turbulence of the year, but most are clinging onto January’s gains.
4 Feb 2021
The FTSE 100 has clawed back above 7,000 – how much higher can it go?
UK stockmarkets

The FTSE 100 has clawed back above 7,000 – how much higher can it go?

The FTSE 100 index has risen to over 7,000 for the first time in over a year – it now sits just above where it was in 1999. But its era of neglect cou…
19 Apr 2021
Greensill, Cameron and the return of Tory sleaze
UK Economy

Greensill, Cameron and the return of Tory sleaze

The collapse of Greensill Capital threw a spotlight on political lobbying when it emerged that former PM David Cameron had been fighting its corner. J…
17 Apr 2021
The MoneyWeek Podcast: how to not lose money to inflation and financial repression
Investment strategy

The MoneyWeek Podcast: how to not lose money to inflation and financial repression

Merryn talks to Peter Spiller of the Capital Gearing Trust about how he navigated the last extraordinary year; what he's buying now; and how he plans …
16 Apr 2021

Most Popular

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?
Bitcoin

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?

Dogecoin – a cryptocurrency created as a joke – has risen by more than 9,000% this year alone. Saloni Sardana looks at how something that began as an …
19 Apr 2021
The FTSE 100 has clawed back above 7,000 – how much higher can it go?
UK stockmarkets

The FTSE 100 has clawed back above 7,000 – how much higher can it go?

The FTSE 100 index has risen to over 7,000 for the first time in over a year – it now sits just above where it was in 1999. But its era of neglect cou…
19 Apr 2021
The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021