In sharp contrast to the US markets which have recently hit new highs, UK equities remain generally unloved, despite improving relative performance. However, Alex Wright, portfolio manager of Fidelity Special Values PLC (LON:FSV), believes there are reasons to be positive about UK equities. He reviews the opportunity set and potential catalysts for what, in his opinion, remains a very cheap domestic market.
The strength of US equities, led by the Magnificent Seven tech-related stocks1, has continued to dominate the market narrative in the opening months of 2024. With news closer to home that the UK economy has entered a technical recession, there has been no change in the generally weak sentiment towards UK equities that has marked the asset class since the Brexit referendum in 2016.
As a contrarian value investor, this is creating an interesting opportunity set. I would rather invest in attractively valued companies whose share price reflect low expectations, rather than ones – no matter how great businesses they are – that are priced for perfection and whose shares are likely to fall precipitously should they disappoint, or market assumptions prove unrealistic.
