Author: Amaraj Flora
Senior Portfolio Assistant & Investment Committee Support
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Published: August 2024
As global markets navigate turbulence, the UK emerges as a relative beacon of stability. While France grapples with political extremism, Germany faces structural challenges, and the US experiences its leadership issues, the UK stands out with a sense of calm and economic resilience.
Key domestic indicators suggest the UK market is in a strong position. Approximately £300 billion in excess domestic savings remains unspent, coupled with rising real wages among those most likely to spend. Businesses in the UK also show signs of strength, boasting robust balance sheets and a growing willingness to invest. This confidence is reflected in business sentiment, which recently reached an eight-year high.
This stable environment, buoyed by political stability following the UK election, presents an attractive landscape for investors. With inflation now aligning closely to the Bank of England’s target and potential further interest rate reductions on the horizon, consumer sentiment and disposable incomes are expected to improve. These factors create a favourable backdrop for equity markets, potentially boosting valuations and investor confidence.
The UK market’s valuation remains discounted compared to other developed markets, particularly the US, where stocks continue to trade at a premium. This disparity has spurred significant M&A activity, with the UK ranking second globally in deal value this year. In the first half of 2024 alone, 32 transactions were announced for companies valued over £100 million, underscoring the attractiveness of UK-listed stocks.
Meanwhile, on a global scale, a noteworthy shift has occurred in recent weeks as the Russell 2000 index, representing smaller US companies, has experienced significant gains, contrasting with the recent volatility in the largest US companies represented by the S&P 500 index. This rotation is driven by several key factors, including recent market turbulence caused by the rising yen, fears of a US recession, and a shift in investment away from mega-cap tech stocks towards other areas of the market. Additionally, the economic environment is being shaped by ongoing concerns about inflation and the potential for further Federal Reserve action, which has heightened market uncertainty. This trend indicates a more favourable environment for active investors, who may find opportunities in a market that is no longer solely dominated by mega-cap stocks.
In this uncertain market landscape, where UK catalysts could boost domestic returns and the US market rotation may gain momentum, remaining diversified is key. A diversified approach allows investors to better navigate shifts in both domestic and global markets across the cycle, positioning themselves to benefit from emerging opportunities while mitigating risk.
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Disclaimer
Opinions constitute our judgment as of this date and are subject to change without warning. The value of investments and the income from them can go down as well as up, and you may not recover the amount of your original investment.
The information contained within this blog is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.
