British stocks are due a bounce

“It is a truth universally acknowledged that equities will always go up in the long run,” says Philip Coggan in the Financial Times. Yet the FTSE 100 has gone virtually nowhere since 2000. Even when you count reinvested dividends, the annualised total return of 3.3% in the 20 years to the end of last year is underwhelming.

True, the dotcom bubble was at its height around the turn of the millennium. But US indices, which also experienced that boom, are up roughly threefold since then. The UK index lacks the kind of exciting tech companies that have set the world on fire over the last two decades.

Still, America’s tech-heavy-index can’t outperform forever, says Russ Mould of AJ Bell. If we are heading for higher inflation, then “history suggests that you want to own real assets, or shares in them – commodities, miners, oils and property… the UK marketis ideal”.

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British shares are also far cheaper than their US counterparts. Trading on a cyclically adjusted price/earnings (Cape) ratio of 15.2 as of the start of the current quarter, the UK market is on a discount not only to most developed markets, but also to emerging ones such as Thailand and Brazil. The US is more than twice as pricey on the Cape measure. After two decades of disappointment, the FTSE could be heading for happier years ahead.

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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.