The U.K. stock market has turned into a wasteland as pension funds recoil. Why U.S. funds may pull back too

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Flows from the U.S. defined benefit pension system into equities may dry up, says a JPMorgan strategist.

One of the less-told stories in financial markets is how the U.K. stock market has become something of a barren wasteland.

On Citigroup’s numbers as of last week, U.K. stocks trade at a price-to-earnings ratio for 2023 of 10.6, compared to 20.7 in the U.S. and 17.2 globally. And while taking out high-flying techs would shave U.S. P-to-E down to 18.4, it wouldn’t have any impact on the U.K. numbers at all. No wonder SoftBank is deciding to list U.K. microchip designer ARM in the U.S. rather than its native country.

U.S. private pension funds are well funded — apart from a recent downward revision of a cool $150 billion, possibly owing to greater than expected investment losses on private assets — but that gives them an incentive to further de-risk, to lock in improvements in their funding ratios. That happened last year when, despite the bond market sell-off that saw the U.S. Aggregate index return nearly -15% in the first three quarters of 2022, the bond allocation of private U.S.

The markets U.S. stock futures ES00 NQ00 were pointing to a weaker start, a day after both the U.K. and Norway central bank hiked interest rates by a half point. Crude futures CL.1 slumped over $1 per barrel to $68.36, and the yield on the 10-year Treasury TMUBMUSD10Y fell 5 basis points to 3.74%. 3M shares MMM rose 4% in premarket trade as the company said it would pay $10.3 billion to settle claims it was responsible for so-called “forever chemicals” in drinking water.

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