Long-term gloom about Britain’s economy appears to be lifting and some big investors reckon the end of extreme pessimism is near, with gains ahead for UK-focused businesses and the more international but long-shunned FTSE 100.
Yet, the economy has not entered recession as feared and official statisticians have sharply upgraded data to show the UK recovered earlier from COVID-19 than previously thought. “We don’t necessarily need to see a huge bout of positive news, but the trend of negativity is slowing and the key to making money in any market is to get in at the bottom and capture the start of a turnaround.”A cumulative 76 billion pounds has flowed out of UK equity funds since 2016, data provider Morningstar said, with the bulk of outflows in the last three years. Global equity funds tracked by Morningstar have had 507 billion pounds of net inflows since 2016.
“The outturn for the UK economy will be and is better than the markets expected,” said Invesco’s head of UK equities Martin Walker, adding that his portfolio was now modestly overweight UK consumer staples for the first time in many years. The FTSE 100, trading on a price-earnings ratio of 10.5 times compared to 12.5 times for the wider Stoxx Europe 600, presented “a real opportunity because you are buying at a discount,” Walker said.
Pay rises, said Pantheon Macroeconomics Chief UK Economist Samuel Tombs, mean British households can “maintain their current level of real expenditure under any plausible scenario for official interest rates.” Neil Birrell, chief investment officer at fund manager Premier Miton, said he has raised the proportion of UK stocks in his multi-asset portfolios to the highest since 2019, with a bias towards consumer businesses.
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