Cheap but shunned UK stocks are a buy

Value investors should look to UK stockmarkets, where some of the best bargains in global markets are available.

The UK stockmarket’s performance relative to the global average over the past 12 months has been “the worst in over 40 years”, says a Morgan Stanley note. A bungled pandemic response and ongoing Brexit uncertainty aren’t helping. Yet the key issue is the FTSE’s sector mix. This has been the year of the technology stock, but out of 15 major world markets, only Australia and Switzerland have a lower technology weighting than the UK. Our indices are heavy on unfashionable commodities and financial stocks. The FTSE 250 is down by 18% so far this year, while the FTSE 100 has shed 21%. 

The FTSE 100’s cyclical sectoral composition – “consumer discretionary, energy, materials and financials” – means it is badly hit when the economy tanks but also poised to outperform when the global economy finally normalises, says Capital Economics. A no-deal Brexit would be bad news for the domestically-focused FTSE 250, but the more international FTSE 100 would probably shrug it off: a falling pound would boost overseas earnings in sterling terms, countering the negative domestic shock. UK stocks are “approaching pariah status”, as Alan Brierley and Ben Newell of Investec put it. But they are now trading at the greatest discount to global equities for 50 years. Value investors may find that some of the best bargains in global markets are available at home. 

Recommended

Can Pearson's new CEO turn the company around?
UK stockmarkets

Can Pearson's new CEO turn the company around?

Pearson, the educational publishing group, endured seven profit warnings in seven years under its previous boss. Can new CEO Andy Bird steady the ship…
22 Oct 2020
UK post-Covid recovery stocks: these 20 companies could be set to rocket
Share tips

UK post-Covid recovery stocks: these 20 companies could be set to rocket

Finding stocks with the potential to rise tenfold or even further is far easier said than done. But the pandemic has produced the most promising backd…
22 Oct 2020
Buying bitcoin could be the best way to play the remote working boom
Bitcoin

Buying bitcoin could be the best way to play the remote working boom

The coronavirus pandemic has accelerated the move to home working, flexible employment practices and the rise of the “digital nomad”. One of the best …
21 Oct 2020
Great frauds in history: the Independent West Middlesex Fire and Life Assurance Company's early Ponzi scheme
Investment strategy

Great frauds in history: the Independent West Middlesex Fire and Life Assurance Company's early Ponzi scheme

The Independent West Middlesex Fire and Life Assurance Company (IWM) offered annuities and life insurance policies at rates that proved too good to be…
21 Oct 2020

Most Popular

How will we repay our vast debt pile? Do we even need to?
Sponsored

How will we repay our vast debt pile? Do we even need to?

In his recent articles looking at different aspects of the fixed-income investing world, David Stevenson looked at inflation. Today he looks at a clos…
19 Oct 2020
Buying bitcoin could be the best way to play the remote working boom
Bitcoin

Buying bitcoin could be the best way to play the remote working boom

The coronavirus pandemic has accelerated the move to home working, flexible employment practices and the rise of the “digital nomad”. One of the best …
21 Oct 2020
Negative interest rates and the end of free bank accounts
Bank accounts

Negative interest rates and the end of free bank accounts

Negative interest rates are likely to mean the introduction of fees for current accounts and other banking products. But that might make the UK bankin…
19 Oct 2020