Wall Street analysts predict UK stocks will outshine their European counterparts as President-elect Donald Trump’s trade tariff policies loom. With fewer manufacturers vulnerable to tariffs and a strong presence in banks and energy companies, the UK’s FTSE 100 index is seen as better positioned than its Eurozone peers. Investment heavyweights such as Goldman Sachs, BlackRock, and JPMorgan Asset Management are betting on the UK market to benefit from political stability and Trump’s deregulatory agenda.

1. Why UK Stocks Are Gaining Favour

The FTSE 100 has risen by 0.4% since late September, outpacing the Euro Stoxx 50 index, which has fallen by 4% in the same period. Analysts highlight several factors driving this optimism:

• Limited Exposure to Manufacturing: Unlike Germany, which relies heavily on exports, the UK has fewer manufacturers likely to be affected by US trade tariffs.
• High Weighting in Banks and Energy: These sectors are expected to benefit from Trump’s deregulatory stance and pro-oil policies.

Sharon Bell, equity strategist at Goldman Sachs, said, “The UK will be hit by a trade war but less so than elsewhere in Europe.”

2. Boost from Trump’s Policies

Trump has announced plans for significant tariffs:

• 25% Tariffs: On all imports from Canada and Mexico.
• 10% Tariffs: On Chinese goods.

This trade strategy is predicted to disrupt global markets, but the UK’s diversified equity market appears well-shielded. Hugh Gimber of JPMorgan Asset Management noted that the FTSE 100’s energy and financial sectors could thrive under Trump’s economic agenda.

3. Attractive Market Valuation

Despite its longer-term underperformance, UK equities are increasingly viewed as a value opportunity:

• Relative Valuation: The FTSE 100 trades at a 50% discount compared to US markets.
• Political Stability: BlackRock has favoured UK stocks since Labour’s election victory, anticipating steady governance to support growth.

Helen Jewell of BlackRock emphasised, “The relative skew in the UK towards financials and services should help insulate UK equity markets in the event of tariff battles.”

4. Risks and Criticisms

While optimism surrounds UK equities, some analysts remain cautious:

• Value Trap Concerns: Pictet Asset Management warned that the UK may still be in a value trap, describing the FTSE 100 as “the best market among the worst in Europe.”
• Long-Term Underperformance: Since the Brexit vote in 2016, the FTSE 100 has risen by 31%, lagging behind the S&P 500’s 183% gain over the same period.

5. Outlook for UK Equities

Rising share buybacks, merger activity, and a tech-light index are expected to further boost UK stocks. Investors seeking diversification from US tech giants may find the UK market increasingly attractive.

Conclusion: UK Stocks Poised for Growth

UK equities are emerging as a strong contender amid global economic uncertainty and Trump’s trade tariffs. While risks remain, the FTSE 100’s resilience and undervaluation position it as a preferred choice for investors looking to weather potential trade disruptions. With backing from Wall Street heavyweights, the UK market may finally shed its “unloved” status and deliver solid returns in the years ahead.

Source: (FT.com)