Will the UK stock market finally face a positive period ahead?
Investment experts seem to think so. And that’s because the equities/stocks are cheap, meaning returns can be high. In recent years, US stocks have surpassed other regions by large margins largely due to being home to some of the world’s best technology companies, and of course, their stocks. US cap valuations have also exceeded long-term averages in the last five years whereas the UK stock market has sat below its long-term average. So there is definitely potential for growth.
Of course, the above trends are also ramifications of Brexit. However, as things currently stand for the UK stock markets, the time is right for investors to start investing.
It would be impossible to talk about the challenges faced in 2020 by those owed their remittance, without mentioning the global health crisis and how it has impacted commodity prices, economic activity, and the willingness of companies to pay out owed remittances. However, as is often the case in the world of finance and investing, things are cyclical. Now that the dust of Brexit is settling, remittances are also growing.
Beyond Brexit & Covid
Investors are looking beyond Brexit and Covid. Yes, in the last few years investors have displayed a lack of investing in UK equities — with Brexit initially providing the impetus for this lull. But that has been followed by the ramifications of the global health crisis on the UK economy and its equities market. Now that clarity has started to prevail via the new arrangements that the UK has made with Europe and its strong vaccine roll-out, the appetite for risk towards assets and stock is once again growing.
Additionally, aiding a clearer vision of a post-Brexit world, the lockdowns have nurtured a taste in people to spend given the months of saving when most businesses were closed. Throw in a declining unemployment rate, a successful vaccination programme and the easing up of lockdown restrictions, and you’re basically sitting on a domestic economy that’s about to make a sizeable rebound spurred on by an estimated £200 billion of lockdown-induced savings ready for consumer spending.
Mergers & Acquisitions Proving Popular
Since the start of the year, mergers and acquisitions have been on the rise. In fact, activity has reached a record high. Thus far, 124 takeovers and purchases have occurred, equating to a value of about £41.5bn — a result of appealing valuations, the settling of Brexit, and the speed at which the vaccination programme has been executed. Of particular note is the fact that 47 per cent of these deals have been on the European end. In other words, European private equity deals homed in on FTSE 100 and S&P 500 companies in some cases — just shy of half of all the deals done.
What’s next?
The UK equity market is at its lowest valuation globally, which means that the time for investment on a global scale is ripe. Analysts agree that investors are reengaging with the various assets that make up the UK economy and stock markets, so recovery is assured.
The latest string of mergers and acquisitions also indicated the value that investors can find in UK stocks/equities. However, not all are in agreement. Some analysts are saying that many issues around Brexit still need resolving and that a decline in unemployment isn’t guaranteed, which in turn could lead to less consumer spending.
Once again, a good vaccine roll-out is seen as an end to a lot of the economic strife. But as most UK equities are still sitting at a 40 per cent discount to their global peers, there’s plenty that remains to be done. Still, in terms of external investment, things are looking up.
