This is the world’s most-hated stockmarket

Jeremy Corbyn © Getty Images
Markets are worried about Brexit, and scared of a Corbyn government

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Every month, Bank of America Merrill Lynch takes a poll of global investors to get their views on what’s going on in the world.

Right now, global investors are keen on banks, cash, and emerging markets – in that order (interesting combination, I’m sure you’ll agree).

They hate the healthcare sector and bonds in general are the third and second-most-hated assets.

But way out in front in terms of fear and loathing is the one stockmarket that global investors truly detest: our very own UK market.

Here’s why fund managers hate the UK – it’s convenient to do so

According to Bank of America Merrill Lynch, the UK is more hated than it’s ever been in the history of the company’s monthly global fund manager survey. That comprises nearly 20 years of data now (it started in 1999), so it’s quite a significant moment.

Why do fund managers have it in for the UK at the moment? We could go on about all the political stuff, or productivity, or the strange mix of sectors in the UK market. But the most likely answer is that it’s because at the moment, it’s convenient and low-risk to take that position.

Think about it. If you’re a global fund manager, you have the pick of global markets. If you can easily strike one out of the running and thus lighten your workload, you’re going to do it.

To do that, you only need an excuse that makes your stance easy to justify. And there are two very obvious “big picture” reasons to dislike the UK as an investment right now, reasons that anyone can wrap their head around.

One is Brexit. I happen to think that Brexit is largely a political story and not one that will have a huge effect on the economy overall. But it is a source of uncertainty, and it’s a very easy and obvious factor to point to if you’re trying to make a case for avoiding the UK.

The other is the prospect of a Jeremy Corbyn-led government. I suspect that this is having more impact than Brexit. Corbyn and his shadow chancellor, John McDonnell, have made a lot of noises about nationalisation and higher taxes. More generally, they’ve given a sense that business is not welcome and that property rights are not necessarily something to be respected.

Those are two glaring, obvious reasons not to invest in the UK. They make it very easy to justify such a stance to your investors.

It’s nice to be seen as a contrarian, but being one is a different matter 

“But surely”, you’re thinking, “this level of loathing must flag up an opportunity to some particularly enterprising managers?” Not necessarily. You have to remember the power of “career risk”.

Most fund managers like to strike a bit of a contrarian pose. But they’re not really contrarians. Most of them find a consensus position and then try to paint it as somehow being contrarian, when it’s not. That’s because they know that being contrarian looks good, but acting on it is an incredibly high risk, potentially career-limiting strategy.

The incentives are entirely skewed. If you are “overweight” (as the jargon has it) the UK right now in your global fund, then you are going against the received wisdom of your peers and most opinion formers.

If you are right, then your fund might outperform, but no one is going to give you a medal. Your outperformance alone is but one small contributing factor in your organisation’s quest to gather more assets.

Moreover, while you will have proved your peers wrong, their reaction will be that, given the facts on the ground, only a gambler or a pathological risk junkie would have taken the bet that you did. You just got lucky.

If you are wrong, of course, then everyone gets to call you an idiot and your career prospects may be in jeopardy. When you challenge the consensus, the consensus will revel in your failure and dismiss your success – that’s the wonder of confirmation bias. It’s an evolutionary adaptation designed to reinforce social cohesion by rewarding conformity and punishing dissent.

In short, it’s one of those wonderful “Teflon” positions – career-wise, you can’t go wrong. Just as no one will get fired for owning Amazon shares, so no one will get fired for avoiding the UK.

You don’t have to worry about being fired over your portfolio

This is the one area where individual investors have a huge advantage over institutional investors. You don’t have to worry about career risk, and you don’t have to worry about anyone telling you you’re an idiot when they look at your portfolio.

Of course, the mere fact that the UK is loathed by professional investors doesn’t mean that it’s chock full of bargains, or that you should stick all your money into a FTSE 100 tracker.

Like it or not, there are a lot of value traps in the UK – particularly in stocks that feel beholden to paying dividends that they can’t really afford to maintain for the long run.

But when you have a market that’s this detested, I can’t help but think that there must be some good value in there somewhere. We’ll be looking at where it might lurk in MoneyWeek magazine in the very near future. If you’re not already a subscriber, sign up now.

  • Peter Blackler

    Oh yes…it’s extremely convenient to say this isn’t about Brexit when the magazine wholeheartedly supported it; I canceled my subscription when you expected me to pay for pages of unchallenged, economic nationalism from Boris Johnson
    Just going great isn’t it? The Independent as here:
    “UK economic growth to lag all other G20 countries this year, OECD predicts
    Economy will grow by 1.3 per cent this year, and just 1.1 per cent in 2019”

    • Ann Gregory

      Peter Blackler: Predictions are not a reliable indicator of future performance – as shown by past performance (of the predictors!)

    • Jimbo55

      While of course, if it’s in the Independent and predicted by an organisation full of mainstream economists with a collectively abysmal track record of predicting, it must be true…

  • AAJ

    It’s Brexit. A Corbyn-led government got closer because of Brexit. They may indeed get in because of Brexit. But ultimately, it’s Brexit.

    • Jimbo55

      A Corbyn led government has become closer through wealth inequality compounded by asset price inflation which you can safely lay at the door of Quantitative Easing. This has nothing whatsoever to do with Brexit and everything to do with Central Bank Monetary Policy.

      Cryptocurrencies are the one great hope the Millennial Generation has for bridging the wealth divide fostered by QE, as they are majority owners of a new asset class that falls outside the realm of Central Bank control and interference.

      • drgrumpy1

        But that assset class might well get get clobbered in the next 12 to 24 months.

        • Jimbo55

          Indeed it may, but it’s already been clobbered by 70% peak to trough. I’d say that probability favours the newer weaker hands now being out and the price action over the past 6 weeks has been significantly less volatile and shows signs of more patient money accumulating every dip. Also, when you have gents such as Mark Hart, John Burbank and Mark Yusko establishing Crypto hedge funds, it may pay off in the medium term to give the space some attention. These gents typically don’t comprise the dumb money.

          When you’re playing for $400k Gold equivalence by 2030 and only risked 0.5% of your net worth on entry, it’s quite a compelling risk/reward trade off.

  • Relative to the US, the UK probably is chock full of bargains. You only have to look at metrics like dividend yield or CAPE to see the yawning valuation gap between the major US and UK indices.

  • Packard27

    John,

    Yes the market is hated by those with a fixed narration of life running through their heads. Anything that supports that narration is automatically overweighted, while everything that runs contrary to it is either underweighted or discarded. It works the same in the US as it does in the UK.

    Thank you President Trump: We hate you. We voted for Hillary. And, we are all still just sick about how the 2016 elections turned out….To make matters worse and add insult to injury, many of us sold out of most of our equities position back in mid November 2016.

    After all of this digging, there can’t possibly be a pony buried in this barn. No way. Not a chance. Can’t happen. There better not be. Oh just hurry 2020 and Joe Biden or Hillary or Bernie or Kamila or Pocahontas or…

  • roborat

    There’s far better growth elsewhere – maybe one of the reasons investors “hate” the UK stock market. It’s all relative.