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Is this the year U.K. stocks will finally outperform?
Since 2015, the FTSE 100
UKX,
has returned 50%, compared to the 160% surge for the S&P 500
SPX,
and the 76% gain for the Euro Stoxx 50
SX5E,
according to data from Goldman Sachs.
Goldman strategists led by Sharon Bell say its large-cap exposure to financials and commodities, and lack of exposure to tech, is what has led to the FTSE underperformance.
They say there’s several supports this year for the FTSE 100. Bond yields should rise, which should support value sectors over longer-duration growth ones. Commodity prices, especially for oil
CL.1,
and copper
HG00,
also may rise, supporting cash flows for those companies. A third support may come from high corporate cash balances, which should keep M&A strong and boost buybacks and dividends.
In the medium term, however, the strategists fret that there’s a lack of high-growth companies in the top U.K. index. There’s also a lack of domestic support, as pension funds and insurers have been sellers, and households hold their wealth in deposits or housing.
“As such, the UK needs to attract overseas investment – two-thirds of the UK equity market is held by non-UK holders. The lack of domestic bid for stocks is probably also a factor in holding down valuations,” said the strategists.
The FTSE 100 did outperform rivals on Friday, trading steady as bond yields rose in reaction to the U.S. jobs report showing a decline in unemployment and a pickup in wages.
