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UK stocks are set to outpace their European peers, according to some of Wall Street’s biggest institutions, with the London market viewed as better placed to weather the fallout from US president-elect Donald Trump’s plans for sweeping trade tariffs.
Investment banks Goldman Sachs and Société Générale and fund managers BlackRock and JPMorgan Asset Management are among firms that believe UK equities are likely to continue a recent run of outperformance of Eurozone stocks.
The FTSE 100 index has gained 0.4 per cent since the end of September, when a so-called Trump trade based on bets on a victory for the Republican candidate started to take more of a hold on global markets. The Euro Stoxx 50 index of large Eurozone companies has lost 4 per cent over that period.
“The UK will be hit by a trade war but less so than elsewhere [in Europe],” said Sharon Bell, an equity strategist at Goldman Sachs.
A relative lack of manufacturing firms that could be hit by tariffs should help British stocks relative to Germany’s export-heavy market, she said.
Banks and energy companies — both of which have a large weighting in the FTSE 100 — could experience a boost from Trump’s enthusiasm for deregulation and his pro-oil policies, said Hugh Gimber, a strategist at JPMorgan Asset Management.
Meanwhile, a rise in share buybacks and merger activity should provide a further boost to British stocks, while its technology-light index tempts investors seeking to diversify away from the US tech giants, he added.
“The UK has been unloved for a long time but I now think the outlook for the UK equity market is at the strongest it has been for several years,” he said.
It is not the first time in recent years that Wall Street firms have turned bullish on the UK.
BlackRock, the world’s largest fund manager, has favoured UK stocks since this summer’s landslide election victory for the Labour party, betting a period of “relative political stability” would help the market.
However, the implications of Trump’s win have further bolstered its view on the UK, according to Helen Jewell, chief investment officer for equities in Emea at the firm, which manages $11.5tn.
“The relative skew in the UK towards financials and services should help insulate UK equity markets in the event of tit-for-tat tariff battles between major economic areas,” she said.
Despite the UK market’s perennial cheapness compared with the US — it currently trades at 50 per cent discount, according to BlackRock — it has lagged other major markets longer-term. Since the 2016 Brexit vote the FTSE 100 has gained about 31 per cent, compared with a 183 per cent rise in the S&P 500.
Pictet, one of Europe’s biggest asset managers, said that the UK shares “might well be in” a value trap, and that the FTSE 100 index is only “the best market among the worst” in Europe.
“It is hard to buy anything other than US assets at the moment,” said Luca Paolini, the firm’s chief investment officer.