Investors are increasingly viewing UK markets as a potential haven amidst rising political uncertainty in the U.S. and other parts of Europe. This shift could mark a significant turnaround for a country that seemed to have lost its traditional appeal to global capital. The recent landslide election victory for Britain’s centre-left Labour government offers a prospect of predictable policy and improved trade relations with the European Union, aiming to revitalise an economy that has struggled since the 2016 Brexit vote.
In contrast, political gridlock in debt-laden France has revived memories of previous eurozone crises, and there is widespread speculation about the potential market impacts of former U.S. President Donald Trump regaining the White House. As Britain’s economy shows signs of improvement, some bankers anticipate a revival for UK stock markets, which had suffered from years of turbulence under successive Conservative governments. The BlackRock Investment Institute expressed a bullish stance on UK stocks, potentially indicating a shift in sentiment among major global institutions that have been wary of Britain since 2016.
Despite this optimism, those moving funds into the UK warn that its haven appeal might be short-lived unless new Prime Minister Keir Starmer can implement a bold plan to boost living standards without further straining the nation’s finances. Pictet Wealth Management’s chief investment officer, César Pérez Ruiz, acknowledged the positive impact of the recent election and the uncertainties driven by France, suggesting a potential honeymoon period for Britain. However, he emphasised the need for more detailed fiscal spending plans from Starmer, revealing that he had sold some European corporate debt due to French political risks and bought UK equivalents, albeit with caution about holding these positions for longer than six months.
Data from information provider Lipper shows that investors have continued to withdraw money from UK equity funds and stock market trackers since the July 4 election. Nonetheless, there are positive indicators on the horizon. Following a dearth of London listings, potential large offerings from companies like Shein and De Beers are expected, with some bankers predicting a broader revival of the UK market next year. In a bid to encourage more initial public offerings (IPOs), the UK market regulator fast-tracked several listing rule changes. This move comes after London’s share of European IPO volumes plummeted from 28% in mid-May 2021 to just 1% in the same period in 2023.
Peel Hunt’s head of equity capital markets, Brian Hanratty, noted some reasons to be relatively more positive about the UK market compared to other regions. He observed companies engaging in early-stage investor meetings and holding more discussions with accountants about IPOs. Meanwhile, big investors are beginning to show increased optimism. Fidelity International’s head of multi-asset, Salman Ahmed, sees a virtuous cycle taking hold if Labour can rebuild EU trade links and revive business spending, despite maintaining a neutral view on Britain. Some funds within Fidelity are increasing their exposure to UK assets. Matt Evans, a portfolio manager at NinetyOne, mentioned that UK companies he engages with are preparing to invest in projects previously delayed under Conservative rule.
BNP Paribas’s head of equity strategy, Dennis Jose, believes the risk-reward ratio for the UK is favourable, though he cautions that the return of substantial capital flows will require more time.
The UK market is witnessing renewed interest from investors looking for a safe haven amid global political uncertainties. While the recent election results have sparked optimism, the sustainability of this appeal depends on the new government’s ability to deliver on economic promises without exacerbating fiscal challenges. The potential for a market revival is present, but it will require careful navigation of the evolving political and economic landscape.
Fidelity Special Values PLC (LON:FSV) aims to seek out underappreciated companies primarily listed in the UK and is an actively managed contrarian Investment Trust that thrives on volatility and uncertainty.
