UK stocks have become a global favourite

"The Gherkin" and skyscraper of London City, high angle view, England, UK

(Image credit: Alexander Spatari)

published 27 August 2024

"Germany’s biggest bank” has become the latest to trumpet the appeal of UK stocks, says John-Paul Ford Rojas in This is Money. Deutsche Bank notes that the FTSE 100 has put in a “remarkable performance” of late, with the blue-chip index outperforming the eurozone’s Stoxx 50 by 10% since the beginning of April. The London market has endured a “grim period”, with “bombed-out valuations” prompting big names to flee to foreign exchanges.

But at a time of political uncertainty in the US, France and Germany, Britain boasts newfound safe-haven appeal. The UK has become Wall Street’s favourite European market, says Eleanor Butler for Euronews. A net 30% of global fund managers told a Bank of America survey they plan to take “overweight” positions in UK equities, up from “less than 10%” in July. Swiss equities are in second place, with Germany Europe’s least popular market.

Things aren’t all going Britain’s way, say Harry Dempsey and Nic Fildes in the Financial Times. The City has long prided itself on being the “natural listing venue” for commodity firms. Yet the market capitalisation of London-listed mining shares has fallen from $322 billion in 2018 to $272 billion today. That puts the capital behind “New York, Toronto and Sydney” as a global mining hub.

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London has suffered from the de-listing of Russian gold miners in 2022 and BHP’s decision to shift its primary listing to Australia. Meanwhile, Chinese firms increasingly dominate mining activity in Africa. Average daily-traded volume on the FTSE All-Share index has dropped from a peak of nearly £14 billion 2007 to about £3.6 billion as of last month, says Bloomberg. Still, London remains Europe’s busiest bourse measured by daily trading. Globally it is the world’s sixth-biggest exchange by market capitalisation.

After a long listings drought, several big names, including fast fashion retailer Shein and Anglo American Platinum, are eyeing potential London listings. An upcoming rush of flotations might finally put some wind in the UK market’s sails. UK shares trade on “little more than half” the rating for US firms on an earnings basis, says Tom Stevenson in The Telegraph. Lowly ratings are often justified. US businesses are typically better run than UK firms – some “stodgy FTSE 100” firms are mediocre stewards of capital.

But for those prepared to “dig” into mid caps there are plenty of compelling UK value opportunities. Goldman Sachs forecasts that the FTSE 100’s earnings will grow 9% next year, compared with 20% for the FTSE 250 mid-cap index, but both indices trade on comparable valuations. With interest rates falling and the British economy perking up, the FTSE 250 looks like a “coiled spring”, says Alexandra Jackson of the Rathbone UK Opportunities Fund.

Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.