UK equities
08 May 2018 | By Richard Buxton

‘The UK is uninvestible – Discuss’

Brexit fears and the outlook for corporate earnings have prompted global investors to avoid UK equities as an asset class over recent months. But a look under the economic bonnet of UK plc reveals not all is doom and gloom, says Richard Buxton.

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UK services – still in expansionary mode

Over 75% of the UK’s GDP growth comes from the services industry. Having slumped to a low in the aftermath of the Brexit vote, forward-looking Purchasing Managers Index (PMI) surveys reveal managers are still in relatively optimistic mood (with anything above 50 denoting expansion.

UK banks:

balance sheets restored Balance sheets of UK banks, the mainstay of the British economy, are in better shape than at any time since the global financial crisis. The results of 2017 stress tests, announced in November, showed all major UK banks comfortably exceeding their designated hurdle rates.

UK assets are still wanted by overseas buyers

Despite overseas investors underweighting the UK equity market in their portfolios, appetite for UK companies from overseas bidders remains healthy. Deals proposed so far in 2018 include:

Better news for the beleaguered UK consumer?

With consumer spending accounting for over 60% of UK GDP, any increase in real wages should be positive. If, as is expected, inflation peaks this year, the squeeze on real earnings growth may soon end.

What’s happened to valuations?

UK equities are trading at a discount to the majority of their international peers. For those who believe starting valuations are the key to future long-term returns – that should be encouraging.

The bigger picture; threats to synchronised global growth

Risks are always at the forefront of a fund manager’s mind. The UK economy could be impacted by any combination of the below:

How the active fund manager can typically add value

Irrespective of the underlying state of the UK economy, active stock picking can uncover genuinely undervalued situations. Despite all the political noise, the FTSE All-Share Index

returned over 13% in 2017. But many UK stocks returned in excess of that. Here are some of last year’s winners… and losers.

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