The comeback of UK equities
Despite the measures still in place around the world to contain the pandemic, financial markets have been anticipating a post-pandemic global economic recovery for many months. This reflationary environment is favourable to financial assets most sensitive to a synchronised global recovery, to the commodity cycle and to interest rates. In the stock market, this is reflected in a marked revival of interest in cyclical and value stocks, which have significant upside potential.
The UK stock market, measured by the FTSE 100 large-cap index, looks particularly attractive from this perspective. Since the Brexit vote on 23 June 2016, the UK market has been shunned by international investors. However, since the fiercely negotiated eleventh-hour deal struck with the EU on 24 December 2020, UK assets have rebounded strongly as the political risk premium has evaporated. This is demonstrated by the performance of sterling, which has recorded the strongest rise in the G10 block this year against both the US dollar and the euro.