It’s time to buy British stocks
The UK economy remains sluggish and still faces many headwinds. But things are looking brighter for British stocks.
Britain’s third-quarter GDP figures “disappointed – plain and simple”, says Sanjay Raja of Deutsche Bank. The economy grew by 1.3% between July and September, a sharp deceleration from the 5.5% rise in the second quarter and worse than forecast.
Supply chain problems and weak business investment played a role, while the July and August “pingdemic [held] the economy flat” before a bounce in September, Sarah Hewin of Standard Chartered told the BBC.
GDP is still 2.1% below pre-pandemic levels, worse than most other advanced economies, says Raja. The recovery is still “ticking along”, says Ruth Gregory of Capital Economics. But with headwinds from rising taxes and energy costs, “a period of sluggish growth until the middle of 2022” is in prospect.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
British blue-chip stocks poised to catch up
Things are looking brighter for the FTSE 100, says Tom Howard in The Times. JPMorgan’s analysts have been bearish on Britain in recent years but recently shifted their guidance, telling clients to buy “near-record cheap” British shares.
The FTSE 100 could do with a break. London stocks have underperformed the global average every year since 2015. The index has gained 11.5% so far this year, compared with a 27% rally on Wall Street or the 28% gain of France’s CAC 40 (see below). Few global investors are excited by London’s stodgy banks and oil companies. Brexit uncertainty and last year’s dividend cuts haven’t helped.
After such a poor run the MSCI UK index trades on a forward price/earnings (p/e) ratio of just 12, substantially cheaper than a rating of 16 in the eurozone or 22 in America, says Emma Powell in the same paper. Overheated global equity markets will run out of steam at some point. When they do there is much less potential downside for British shares than for those elsewhere.
JPMorgan, Barclays and Credit Suisse are more negative on the more domestically-focused FTSE 250 and small caps, says Elliot Smith for CNBC. The investment banks like British blue chips more than the British economy. About 80% of FTSE 100 revenues come from overseas, while a weakening pound (see column, left) also flatters overseas earnings in sterling terms.
Dividend payouts have rebounded after last year’s disappointments, says Jeff Prestridge for FTAdviser. “Juicy company dividends… are one of the defining characteristics of the UK stockmarket”. UK plc is poised to offer “an income of some 3.5% over the next 12 months”. Try getting that from a savings account.
International investors may finally be deciding that the FTSE’s weaknesses are in the price, says Cormac Mullen on Bloomberg. “Equity bulls looking for a cheap stocking filler” for Christmas are “betting on Britain”.
-
Revealed: the countries with the most generous pensions
The UK state pension is often criticised for failing to deliver a comfortable retirement. So, how does our pension system compare to other countries - which countries are most generous, and at what age can you claim a state pension?
By Ruth Emery Published
-
Private school fees soar and VAT threat looms – what does it mean for you?
Rising private school fees could see more than one in five parents pull their children out of their current school. Before you remortgage, move house or look to grandparents for help, here’s what you need to know.
By Katie Williams Published
-
AstraZeneca CEO’s £1.8mn pay rise approved despite shareholder opposition
AstraZeneca hiked its dividend to persuade shareholders to accept CEO Pascal Soriot’s pay rise. Is he worth his salary?
By Dr Matthew Partridge Published
-
Adidas, Nike or Jordans - could collectable trainers make you rich?
The right pair of trainers can fetch six figures. Here's how you can start collecting vintage Adidas, Nike or Jordans now
By Chris Carter Published
-
The industry at the heart of global technology
The semiconductor industry powers key trends such as artificial intelligence, says Rupert Hargreaves
By Rupert Hargreaves Published
-
Three emerging Asian markets to invest in
Professional investor Chetan Sehgal of Templeton Emerging Markets Investment Trust tells us where he’d put his money
By Chetan Sehgal Published
-
What to consider before investing in small-cap indexes
Small-cap index trackers show why your choice of benchmark can make a large difference to long-term returns
By Cris Sholto Heaton Published
-
Why space investments are the way to go for investors
Space investments will change our world beyond recognition, UK investors should take note
By Merryn Somerset Webb Published
-
Time to tap into Africa’s mobile money boom
Favourable demographics have put Africa on the path to growth when it comes to mobile money and digital banking
By Rupert Hargreaves Published
-
M&S is back in fashion: but how long can this success last?
M&S has exceeded expectations in the past few years, but can it keep up the momentum?
By Rupert Hargreaves Published